10/23/2009 05:12 am ET Updated May 25, 2011

China Jitters

Asia suffered jitters last week as the world hurtles toward the traditionally dangerous fall season for stocks.

On September 4, the Financial Times plastered across its front page a photo of riot troops in full gear ready to repel protesters in China's troublesome province of Urumqi. That is a remote northwestern province where China's hugely dominant Han ethnic people do not dominate. Violence there in July cost about 200 lives and this week upset Han groups demanded the resignation of the local Community Party boss.

This was followed by concern in another remote region involving protests by Chinese peasants and the sudden departure of Google's China CEO as the government tightens censorship on the Internet.

Welcome to China Tremors, a growing market and media phenomenon, thanks to the fact that the Middle Kingdom has taken its place among the world's most important economies.

Not just China either

There were also small seismic shocks, such as the overthrow of Japan's ruling elite with a socialistic, untested party that pledges to get out from under America's hegemony. Then there's always the nagging concern about North Korea with its ailing, lunatic leader and his unknown succession plans.

That's the bad news. But that's also the good news because transparency has never been greater in the region. China -- third largest GDP in the world -- is now exceedingly open as reporters, citizen journalists, photographers and bloggers beam its tremors and jitters to the rest of the world.

Put another way, ten years ago it would have been unthinkable that a journalist could have shot a scene in Urumqi, much less that Chinese would demand the head of a Communist big shot.

China 2.0

Welcome to burgeoning democracy and transparency in China, which brings with it more shivers among the world's investors, blips in the price of bullion and angst in policy-making corridors everywhere.

The fact is that China is important, but so are others. And its retreat from a boom and bubble in its markets isn't all that bad for the rest of the world. Europe and the United States are beginning to feel pulses, marking an end to a scary recession, while China's disproportionate stimulus plan kept growth respectable and must now, obviously, be reined in somewhat. Thus the stock market's retreat of 22% in August and more in early September.

China also has overcapacity, collapsed export sales and is more sensitive than any other economy to commodity fluctuations, which have been on the rise due to fundamentals.
So market investors in China responded by selling due to fears that authorities will curb bank lending and impose restrictions on imports to reduce industrial overcapacity.

Analysts also pointed to lingering worries about a flood of new shares in the market.

Gold bugs love China jitters

China worries, as usual, also contributed to increasing gold prices in August, along with America's appetites to overspend and undertax. Gold prices are also helped by aggressive buying which is now official policy in China and Russia as the U.S dollar is debased through frightening deficits and political rigor mortis.

Much depends on China, but it's far from the only game in town. As it manages its expansion and the expectations of its massive population, it's important to remember that it is roughly the same economic size as Germany and Canada, and only one-fifth as big as Japan and the U.S.

We live in interesting times and this fall should be a whopper.

Diane Francis blogs at Financial Post.