Last Wednesday’s catastrophic chemical explosion in Tianjin - that at last count had killed 114 people and injured more than 700 - put Beijing in a particularly tough spot at a decisively inopportune time.
Just two days earlier, China devalued the yuan in an effort to rescue its flagging economy which has stubbornly refused to respond to multiple policy rate cuts. Of course that wasn’t the official line. The PBoC’s excuse for the move is that it’s part of a larger effort to liberalize markets and allow the metaphorical invisible hand to play a larger role in determining everything from exchange rates to defaults. But as should be abundantly clear by the near daily interventions in both the FX and equity markets, Beijing is finding it difficult to relinquish control over the narrative.
The same dynamic often plays out outside of capital markets. That is, as China’s economy marks a difficult and sometimes tenuous transition towards consumption and services-led growth (i.e. towards a more Westernized system), egregious instances of censorship and the Communist party’s heavy-handed approach to shaping everyday life are seen as evidence that Beijing isn’t truly committed to liberalization.This was evident in the wake of the Tianjin explosion when China moved to shut down hundreds of social media accounts due to the dissemination of "blast rumors." It also appeared as though China was set to leave the public in the dark regarding possible connections between the Party and the owners of Tianjin International Ruihai Logistics. As we noted on Tuesday, "it looks as though determining who actually owns Ruihai will be complicated by the fact that in China, it’s not uncommon for front men to hold shares on behalf of a company’s real owners. This is of course an effort to obscure Communist party involvement in some enterprises."
With all eyes on China in the wake of the devaluation, just about the last thing Beijing needed in terms of shaping its international image and pacifying an increasingly agitated public was to be seen as complicit in a massive coverup of a completely avoidable disaster that ultimately caused the deaths of more than 100 people and may well have far-reaching environmental consequences for the blast zone and beyond.
So faced with a swelling public backlash, Beijing has embarked on an effort to prove how serious it is about launching a transparent and honest investigation. We certainly doubt anyone was impressed with the fact that a handful of Ruihai executives had been detained but now, it looks like China has compelled the mystery owners whose shares were held on their behalf by front-men, to reveal themselves - and their ties to the Politburo - to the public. The New York Times has the story:
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