By Jamil Anderlini in Beijing
This was supposed to be the year that nothing happened in China.
With a high stakes, once-in-a-decade leadership transition scheduled for autumn, most analysts thought backroom political horse-trading would keep any big policy initiatives on the backburner until a new generation had safely taken over the reins of power
That assumption has been proven spectacularly wrong in recent weeks as the party has been engulfed in the most significant political upheaval since the 1989 Tiananmen Square massacre.
It turns out that in the information age, the vicious battles that used to be settled behind the vermilion walls of the Zhongnanhai leadership compound in central Beijing can no longer be smothered with a comforting display of public unity.
Thanks to the power of Twitter-like “Weibo” microblogs, which boast nearly as many users as the US population, the downfall of Bo Xilai, one of China’s most powerful politicians, has played out in real time over the past two months.
As Mr Bo awaits his fate in a villa in the Communist seaside resort of Beidaihe, it has become apparent to an anxious nation that serious splits exist within the ruling elite.
But instead of resulting in the policy paralysis that many had predicted, the political turmoil appears to have prompted a round of long-stalled financial reforms.
Tentative signs have started to coalesce into a more concrete reform road map that appears aimed at forcing the outdated and unwieldy financial system on to a more efficient path.
Leading the charge is Premier Wen Jiabao, who has been heavily criticised over the last decade for his unwillingness or inability to push through tough economic and political restructuring.
In comments on Chinese radio on Tuesday, Mr Wen talked about “smashing the monopoly” of the large state-owned banks that dominate the financial sector and whose profits come “far too easily”.
His strident rhetoric seemed aimed at advancing interest rate reforms that would eventually remove the current cap on deposit rates and a floor on lending rates that guarantee banks a healthy profit margin.
Interest rate liberalisation is a step towards full convertibility of the Chinese renminbi and on this front there have been some recent developments.
Last week, Mr Wen’s office said the government was considering allowing citizens and companies in the wealthy eastern city of Wenzhou to make direct investments abroad, a move that would further erode China’s tight controls over cross-border capital flows.
On Tuesday, China’s securities regulator announced it would nearly triple the total amount foreign investors can invest in Chinese capital markets, which remain almost off-limits to the outside world.
Each of these moves may appear incremental but, combined with a flurry of other adjustments, they amount to the start of a new deal after years of stalled economic reform.
Some analysts suggest Mr Wen is using the reforms as weapons to attack the nebulous “vested interests” that make up his most dangerous political enemies.
Others say he is making a bid for the support of powerful elements within the party who advocate greater financial and economic liberalisation.
But the most convincing argument is that Mr Wen and many of his colleagues have decided that without a robust reform agenda and a fundamental shift in direction, economic and political crisis is inevitable.
In a trenchant article in The Diplomat on Wednesday, Minxin Pei, a prominent academic, argued that the present “sclerotic authoritarian crony-capitalist order,” had led to the re-emergence of “many of the social and political conditions for producing a Tiananmen-style crisis.”
This refrain is common among those who lived through the tumultuous events of 1989, the last time the party was as fractured as it is now.
The trigger then – the fatal heart attack of disgraced but popular leader Hu Yaobang on April 15 1989 – was an event that seemed just as unlikely to ignite an uprising as the self-immolation of a disgruntled Tunisian fruit seller in late 2010.
For two decades, the party’s greatest fear has been that a similar random event will occur at a moment when factional struggles render its leaders unable to recognise or collectively deal with the threat before they are swept away.