Years of the dragon are dangerous. According to the lore of the Chinese zodiac, the mythical beast ushers in a 12-month period of power and prestige. Yet the dragon is also an unpredictable animal, a sinuous creature whose tail and head coil off in different directions.
Sure enough, 2012 is shaping up as an utterly unpredictable year in China. When the Lunar New Year began on Jan. 23, the hope was for orderliness and technocratic diligence to carry the months ahead. China undergoes a once-a-decade leadership transition later this year, and the script for a peaceful changeover from President Hu Jintao to Vice President Xi Jinping was written long ago. The world too was depending on the continuing strength of the Chinese economy to buoy other countries beset by financial crises.
But hopes of political stability in China were shaken when the ruling Communist Party purged its most charismatic mandarin, giving the world a glimpse of the rot within the system: massive graft, abuse of power and an income gap growing so rapidly that the government has stopped releasing official figures. A high-profile flight into American custody by a legal activist spotlighted another failing of modern China: this is a legalist society obsessed with bureaucracy and endless regulations, yet it lacks the rule of law.
The economy, which has expanded so miraculously over the past three decades, has begun to show signs of strain: exports, foreign direct investment and bank lending are all down. Debt is rising, as is the number of protests by farmers and factory workers alike. Chinese consumers may be richer than ever, and predictions of 8%-plus growth for this year don't seem so shabby. Still, the state control that created the most remarkable financial expansion of our time is now threatening to choke the economy.
The library of doomsday books and articles about China's impending demise is crowded. The country is, no, not going to collapse, yet ignoring the warning signs is perilous too. China's leaders know how tricky a course they have to chart, and a populace empowered by the Internet is speaking up and acting out. The structural problems of modern China — a corrupt political system, an inefficient state capitalism — cannot be solved by a flick of the dragon's tail. More than anything, 2012 marks a change in the Chinese psyche. The easy hubris of the early years of this century has been replaced by a wariness of the future. Despite China's long economic boom, Chinese today are less happy than they were two decades ago, according to a new study by the University of Southern California. The Chinese dragon awoke three decades ago. But in this year of living dangerously, where is it headed?