Surface tensions in many cities increasing rapidly

By Chris Devonshire-Ellis

Nov. 11 – Across China, multiple problems are arising with social unrest issues. Recent riots in Shenzhen over the accidental death of a bicyclist and outbreaks of minor, yet disturbing incidents in Shanghai and other cities are beginning to highlight the problems the Communist Party is having with promising wealth to its citizens, yet also having to oversee a massively deflated stock market, declining property values and unemployment on an increasingly worrying level.

The situation is of particular ideological concern as, by nature, Chinese society has developed into a fairly benign, non-confrontational status quo over the centuries. This has been as a result of many people in one place, and strict adherence to both party discipline and Confucian ideology promoting harmony at its core. That China has been able to change and develop its economy to the level it is at today without major social unrest, excepting the Tiananmen Square incident, has been quite remarkable, and until now, a major positive feature of the economic revolution the country has seen. However, there are increasing signs this is being placed under severe stress.

In Shanghai last week for example, I witnessed, in one evening, minor altercations that would demonstrate surface tensions are increasing. A minor traffic incident at a crossroads, with a taxi too close to bumping a pedestrian, instead of being restricted to a few choice words, resulted in the parties wrestling each other to the ground and punching each other furiously. Staff in hotels, restaurants and bars deliberately seeking to inflate prices, add dishes that were not ordered or simply charging for drinks not consumed seems to be more prevalent than before; with the threat of violence if the matter is not resolved in their favor. I heard several stories, and experienced one incident personally, where drinks were poured upon request, on a tab. Come the bill, and it’s far more than could possibly be the case. Cue heavies appearing. In our case, and I’ve been in China a long time, the equivalent of US$500 was requested for four beers and ten whiskey-cokes. And this was in a popular, well known and very busy establishment.

Money is getting scarce, and people in China are beginning to resort more frequently to forms of financial entrapment and the threat of violence to extract money. It’s not just restricted to the Chinese either, some expatriates appear to be under more stress, becoming more argumentative, and more willing to be provoked than was previously the case. Such a change in attitude can only be alarming. Before, when everyone was making a lot of money, we could charge reasonable prices, and make more than enough. Now we have to be unreasonable if the market is letting us down. We’re just passing on the unreasonable nature of the market to our customers, said one Chinese person I asked about it. Those are chilling words, echoed as such in several conversations, and it’s deeply concerning.

It can also be traced back as a wholly modern Chinese phenomenon. When Deng Xiaoping issued what almost amounted to an Imperial Decree, to get rich is glorious, there was no real appreciation over what would happen to Chinese citizens in a forthcoming downturn. Over the past two decades, China has been able to maintain double digit growth something unprecedented in the West, and haul millions out of poverty. In doing so however, the country has created the Gei wo (Gimme) generation; a class of people who feel that to get rich is an entitlement, their birthright. They feel they have the right to act as they choose, regardless of who stands in their way and no matter whether those get rich mechanisms are either ethical or legal or not.

For sure, Shanghai is very different city right now. Its entire ambiance has changed. It’s an unhappy city, and its citizens are becoming increasingly aggressive as frustrations and a lack of comprehension that markets do swing into negative territory from time to time start to kick in. The stock market has declined by over two thirds since its peak last October, the worst performer in the world, while residential property prices are slumping too. While year-on-year growth remained positive at 1.9 percent, the average price for a new home in September fell 0.9 percent from the previous month after a 0.1 percent drop in August.

Things don’t look as if they are going to get any better soon, Hong Kong’s Hang Seng Property Index, which tracks the movements of the city’s six largest property developers, all of them with significant holdings in Shanghai and massively exposed in other Chinese cities, has declined by 30 percent this year to date. Just as much as Shanghai wanted to turn itself into a rival to Tokyo, it may get its wish; Mori, owners of the new Shanghai IFC Building, the third tallest in the world, are unable to find tenants and are expecting a significant downturn in Tokyo prices. Minoru Mori, the group chairman, said he expected a full blown drop in Tokyo real estate over 2009, in a market in which condo prices have already decreased 23 percent this year alone.

If that scenario continues in China, new property owners are going to find themselves in negative equity positions, where the amount they owe on the mortgage is higher than the value of the property. Ordinary Chinese citizens, many of whom have applied for multiple mortgages, may find themselves unable to keep up repayments, especially if unemployment or a downturn in other business revenues occurs, as is looking increasingly likely. Suddenly, that right to purchase a nice large black sedan, buy the wife or mistress a Louis Vuitton handbag, go gambling in Macau or send your children to university overseas is being frustrated, and someone, anyone, is going to have to pay to maintain that or face the anger fueled consequences of newly spurned materialism. Marry that to what the past two generations regard as almost their birthright, to get rich, and the situation could become explosive indeed.

2009 may yet be the year when the Chinese Communist Party really begins to appreciate the benefits of democracy as a social valve. Letting off steam while getting an unpopular government or mayor out of office helps maintain social order. The Public Security Bureau are going to have a very busy time while this particular financial crisis works its way through the system, and the existing Chinese method of governance is likely to both have to dampen down expectations and find ways to divert society’s frustrations while governing them through their first recession if those surface tensions are to remain in check.