China’s political sphere seems to be feeling the heat from the unraveling of the Keynesian policies
From the Telegraph, (hat tip Bob Wenzel)
The arrests are a sign of the ruling communist party's (CCP) extreme nervousness in the wake of an extraordinary few weeks in which an unusually public power struggle amongst the party elite has seen the one-time politburo contender Bo Xilai deposed.
Rumours that a coup was imminent began spreading after Mr Bo was removed from his position as CCP chief of the southwestern city of Chongqing two weeks ago. Posts on microblogs claimed that armoured personnel carriers and tanks had been seen on the streets of Beijing.
China's state news agency Xinhua reported late on Friday that six people are under arrest for "fabricating or disseminating online rumours".
Sixteen websites have been closed for posting reports of "military vehicles entering Beijing and something wrong going on in Beijing". An unknown number of people were "admonished and educated" for their part in spreading the rumours, according to police in Beijing.
"The rumours have "caused a very bad effect on the public," said a spokesman for the State internet Information Office, while the websites were shut down for not acting to stop their spread. Two of China's most popular microblogging sites, weibo.com and qq.com, were also "criticised and punished accordingly" for their failure to prevent the rumours circulating said the spokesman.
As I previously wrote,
China’s copycat of western Keynesian policies have led to massive internal bubbles, blatant misreporting of issued loans and financial innovative arbitrages by the political class, particularly the local governments, whom has circumvented party regulations by setting up 6,000 finance companies to raise funds for public works.
The negative effects of such top down policies have not only bred corruption, it has sown political conflicts which run the risks of escalation and transition to violent political uprisings.
The bottom line is that China’s behind the scene political struggles have been seeping out into the public and will be manifested through price signals in the marketplace, despite repeated attempts by political authorities to expurgate such developments.
China’s Credit Default Swap reportedly rose to new four month highs.
China’s Shanghai index fell 3.69% over the week and seems on path to neutralize this year's gains. Year-to-date, and based on Friday's close, China's gains have been reduced to 2.88%.
Longer term, the Shanghai index seem as approaching a critical threshold.
The almost 5 year symmetrical triangle formation seems on path towards a culmination.
Of course, the SSEC can breakdown or have an upside breakout or extended consolidation. Interpreting the charts mainly depends on the bias of the observer.
However, given the current conditions, the balance of risks seems tilted towards the downside. And this may likely be driven by the economic developments filtering into the political sphere.
It is unclear whether China’s authorities will be able to put a rein on this, and kick the proverbial can down the road, or if political tensions will deteriorate further.
Yet despite attempts to apply strong arm tactics through censorship, price signals will be the most dependable source of information. And any attempts to manipulate the markets may have short term effects.
While the Chinese yuan remains strong, any further deterioration in the political spectrum is likely to reverse the gains and may trigger hot money stampede out of China. And this may ripple through the commodity sphere and to global stock markets.
Again, China could just be the blackswan that could upend today’s central bank powered rallies.
China’s increasing censorship of social media or an attack on free speech also represents an assault to the forces of decentralization which has been operating on the internet platform. The jury is still out as to which of the two forces will eventually prevail. Over the interim expect heightened volatility on the marketplace.
Stay tuned.
