Zhang alluded to a rise in crime and a fall in security with an interesting focus, without mentioning drug abuse, prostitution, the spread of sexually transmitted diseases, including HIV, or violent crime. Nevertheless, he noted: “Adding to the economic and environmental woes, Zhang said: "There is also a security problem in the province. Our open economic reform has attracted nationwide talent to the province, but Guangdong has also become a magnet for pickpockets from all parts of the country. So our social order is another serious problem.

The Government’s Take

According to the People’s Daily Online, though, a totally different meeting took place.

On who was at the meeting, there was agreement: “Hong Kong's Chief Executive Donald Tsang and legislators on Monday ended their two-day visit in south China's Guangdong Province, which is adjacent to Hong Kong. It is the first time that all HK's legislators were invited to visit the mainland as a group. The group led by Tsang included Legislative Council President Rita Fan, Secretary for Financial Services & the Treasury Frederick Ma and the Secretary for Commerce and Industry & Technology John Tsang and 59 lawmakers.”

On what happened at the meeting, though, there was a bit of a different perception: “HK officials and legislators were deeply impressed by the development of high and new technology, the ecological and environmental protection effect, foreign investment and community building in four major cities in Guangdong, namely Guangzhou, Shenzhen, Dongguan and Zhongshan. On Monday, the group visited Honda's production base, a high-tech base and a university town in Guangzhou, as well as a village-turned urban community in Zhongshan City."

Hmmm. There was no mention of pickpockets or fear of Guangdong being replaced as the number one province by others. And oh yeah, there was no mention of any sort of pending crisis, etc.

A Transatlantic View

The Financial Times noted the following: “Hong Kong democrats, some completing their first visit to mainland China in more than a decade, yesterday put a positive spin on their meeting with senior Chinese officials and urged more dialogue.”

Perhaps loosely alluding to Zhang’s speech the Times reported: [“There is no democracy here, but at least they allowed dissenting voices to be expressed,” said Martin Lee, a campaigner who last visited the mainland in 1989. Albert Chan, another democrat, said he was “quite impressed at the performance of the officials”.]

According to the Times: “The trip, instigated by the Chinese government, was a milestone in Beijing's traditionally tense relationship with Hong Kong's democratic movement. For the first time pro-democracy legislators were given an opportunity to air their views before Chinese leaders and were treated as equals with their pro-Beijing peers. This level of tolerance would have been difficult to imagine only 18 months ago, when a commentary in the state-run Xinhua news agency labeled Mr Lee a traitor. Leung Kwok-hung, a prominent activist who was elected last year to the legislature, is also anathema to mainland officials.”

The Real Reason Behind The Meeting

Indeed, there was likely an ulterior motive behind the meeting. For one thing, according to the Financial Times, the whole visit was extremely well choreographed in traditional Communist fashion: “The visit was a reminder of how far apart the two sides remain. Chinese officials arranged a tour of four Guangdong cities in two days for the legislators, leaving only 90 minutes for a face-to-face discussion with local leaders.”

Furthermore, “Beijing has extended olive branches to the democratic movement before, only to let the relationship lapse. Last autumn, several democrats were invited to Beijing to join the National Day celebrations but this produced little reconciliation. Now, however, Beijing needs the democrats' co-operation to avoid a messy confrontation over political reform. Donald Tsang, Hong Kong's chief executive, is expected to release proposals soon to make the way the territory elects its next leader in 2007 and legislators in 2008 more democratic.

Indeed, there is a bit of the old Sun Tsu at work here. You know, the bloodless coup part, about winning wars without destroying the enemy’s infrastructure, and waiting until he gives himself up without a fight, so that you can take all his stuff and turn it into your stuff without spending money to rebuild.

Yeah.. That part… According to the Times: “Ma Ngok, assistant professor at the Hong Kong University of Science and Technology, said Beijing's tolerance of such normally taboo topics reflected its acknowledgement of the democrats' pull with the Hong Kong public. “They don't want to see another half a million [people] march,” Prof Ma said, referring to the protests in 2003. Beijing realised that “a key reason for the chaos around 2003 was because both the [Hong Kong] government and the central government hadn't listened enough to opposition opinion.”

In other words, Zhang’s speech was likely part of the choreography. “The best measure of the visit's success, analysts and politicians said, would be how Beijing proceeded. “If [Beijing] can have more contact and dialogue with the democrats, they will learn eventually how to deal with the democrats,” said Prof Ma.”

Conclusion

Much can be learned from the developments at the Guangdong conference.

First, China is in no position to have a repeat of Tiananmen square. There is too much of a foreign press presence there now, and frankly, too much foreign money. In other words, the Chinese government realizes that much of its fate is now in the hands of foreigners. Ironically, free speech, in the form of the press, and the free flow of money, aka Capitalism, seems to have a bit of weight there now.

Second, it’s clear by the slow and methodical approach to this meeting, that China’s leadership has yet to fully grasp how the world works, and is actually researching the situation, much as an alien who lands on a new planet would, by probing the other side’s defenses.

Third, and perhaps more important, aside from the politics, the diplomacy, and the spycraft, it’s important to remember how this article started, with a reference to China’s most prosperous province currently existing on the verge of a social and economic calamity brought on by too rapid growth, and its consequences, meaning, pollution, crime, and above all, the maldistribution of wealth.

If the cream of the crop is in this much trouble, what is the rest of the country like? And what will GE, Microsoft, Bank of America, The Royal Bank of Scotland, Goldman Sachs, Merrill Lynch and Dell do, if and when they figure this out?

Even more important is what the Chinese economy does when the Fed continues to raise interest rates and money from China continues to trickle back into the dollar, reaching for higher yields.

Our view is only strengthened by this new batch of evidence. China’s economic miracle has a date with destiny, just as every other economy in the world has experienced many times in history. The difference is that the Chinese don’t seem to know what they will do when the inevitable happens.

Of course, now that Mr. Greenspan will retire from the Fed, we’re sure he’ll be available as a consultant. We’re also sure he’ll want to get paid in dollars, or maybe even in Swiss Francs, but not in yuan, and probably not in euros.

______________


The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.