The Great China Stock Crash of 2015 may be recalled as the negative inflection point at which the faith of Chinese in their central government faded.
Yes, the Chinese have always been pragmatic, clear-eyed about risks beyond the horizon. Yes, the wealthiest Chinese have, in droves, secured passports to Western countries as insurance to protect wealth against future uncertainty. Yes, the masses are acutely aware of the corruption that pervades all levels of society and government.
However, the current central government, led by strongman Xi JinPing -- whom the people reverently refer to as "Daddy Xi" -- has, until now, wielded the Mandate of Heaven. The legitimacy of Chinese emperors, of both imperial and Communist varieties, rests on forging order from chaos. Popularity springs from not only making the trains run on time but also orchestrating a Herculean reform agenda that systematically and and incrementally keeps the China's growth paradigm on track.
The shrewd Chinese know tensions that pervade China's economy and society -- between rich and poor, rural and urban, state-owned and private, "strategic" and "non-strategic" business sectors, online and offline economies.
But China is still profoundly Confucian culture. The government and people exist on separate planes on non-intersecting planes. Effective governance is defined by faith in the powerful to balance the nearly unbalanceable. Legitimacy hinges on the ability to conduct reform from the mountain top, to command the respect of conflicting interests, to create a rising tide that lifts many boats.
As growth slows, as the economy demands realignment between "old" and "new" models, the Chinese need to have confidence in their government, lest fear erupt and productivity plummet.
The government has tried many things to halt the dramatic stock market slide. They have cut interest rates, talked up the markets, funnelled pension funds into shares, loosened restrictions on margin trading and now suspended IPOs.
None of it has worked. As the Financial Times' David Pilling notes, "Beijing [has met] its match in the markets."
Could things stabilise? Yes. Could panic be averted? Yes.
But China's still untested leadership team, heretofore hailed as the invincible slayer of the corrupt and master of the history's most vertiginous economic high wire act, is exposed as never before. Confidence in the system can no longer be taken for granted, and that is dangerous indeed. Without confidence in the wisdom of its technocratic mandarins, China will lack the political capital to impose further reform.
The emperor is still wearing clothes. But they are increasingly threadbare.
We are entering interesting times.