It was June 2008 when a group of us lads were taking in pints of beer on the patio of Blue Marlin 3, in the Suzhou Industrial Park, our watering hole, as it were. We discussed China’s recent flare-up of troubles west of Sichuan, and how the Chinese government was intent on keeping the lid on anything that might deflect from the wholesome image it was trying to project through the politicized prism of the 2008 Olympics. I happened to comment, “God only knows what’s going to pop up after the Olympics is finished. The Central Government must be sitting on a lot of stuff it doesn’t want the world to know about.” Already, there had been reports of petitioners to Beijing turned away from the city. They had come with grievances brought from their hometowns, usually about corrupt officials and unfair land grabs. The Sichuan earthquake had revealed construction of private and school properties that was substandard. “What ever does come up,” I said sagely, “it’s going to be ugly.” The guys silently nodded assent, took another sip from their beers.

Three months later China single-handedly destroyed its flagship dairy industry and any credibility and goodwill it had built up during the Olympics. It turned out that since Spring of that year that milk tainted with a derivative of plastic had been poisoning infants throughout the country. City, provincial and national level officials had already known about the devastating revelation for months before, but had been directed to keep the news under wraps until after the all-precious Olympics had run its course. I’ve been drinking imported milk ever since.

I recently finished reading Nassim Nicholas Taleb’s books “Fooled by Randomness” and “The Black Swan”. Taleb is Dean’s Professor in the Sciences of Uncertainty, and holds a PhD in Statistics and one in Philosophy. He’s also been a professional stockmarket trader for more than twenty years. Essentially, both books discuss the role of randomness in our perceptions of the way the world works as we would like, and as it seems to more deliberately operate. Randomness has a greater influence on stock markets, gambling, academic studies, the social sciences and success itself than we are willing to admit – or that we are able to perceive. And the more we try to fit our own experiences and perceptions and the way society functions into what Taleb calls more convenient, digestable narratives, the more we expose ourselves to Black Swans. He presupposes that our post-modern society is and will continue to see more Black Swans as we continue to add complexity into our lives.

For hundreds of years in Europe scientists professed that all swans were by definition white.  When colonists and naturalists stepped onto the shores of Australia, lo and behold, they discovered swans that were in every way the same kind of swans as those found in Europe except that in Australia there was also a variety was black. The discovery serves as a call to the scientific establishment to consider how it conducts science and declares the truth. The Black Swan, then, in Taleb’s thinking, is the highly improbable event that individuals and societies are not prepared to meet when it does occur. The current global economic meltdown of the financial system is just such a Black Swan: bankers and financiers believed it highly unlikely that, despite the great cross-border inter-dependencies that had developed between financial institutions, that the entire system would grind to a withering halt. Governments, banks, politicians and business “leaders” were entirely unprepared for the occurrence of just such a Black Swan.

China, interestingly, was ahead of the rest of the world in experiencing its Black Swan. Actually, what China had suffered was a Perfect Storm in the first half of 2008, even before its Olympics; and before the rest of the world fell off the edge financially. The period was more like a flock of Black Swans furiously beating their wings.

Whatever one might want to call the convergence of unfortunate consequences, the first half of 2008 saw the greatest snow blizzard the country had seen in 50 years – in some parts of China, for nearly 100 years; commodity prices skyrocketing to the extent that even rice seemed to become a precious commodity for a few weeks; factory closures that occurred under cover of cold Spring Festival nights; the violent protests in the Western parts of the hegemony; the Sichuan earthquake.

Other Black Swans that have given Chinese leadership pause in recent decades include: the student unrest and subsequent crackdown of 1989; the Asian financial crisis of 1997 and the SARS outbreak in 2003. One could say that Chinese history from 1842 (the First Opium War) until 1949 was one damned Black Swan after another. Things didn’t settle out much after that, with various self-inflicted events that had catastrophic consequences for the country and its citizens.

A Chinese friend postulated that because China had suffered so many misfortunes last year, that this year it was able to ride out the global economic downturn better than Western countries. In some ways, she’s right: it is unmistakable that its stimulus package has given a much-needed shot in the arm to its infrastructure projects, and that consumption in China continues to rise, albeit not as aggressively as exporters around the world would like to have it. Global economic antecedents such as factory closures in the south and north of China; rising unemployment among migrant workers and recent university grads; and increasing numbers of protests based in the rising inequality of income levels in China proved canaries in the coal mine. The Chinese government could feel the sea change and met the challenge domestically before Western countries knew what fate had befallen their own credit-bloated systems.

Though China’s is half the GDP growth rate of just a couple years ago, the current six percent mark is not bad by Western standards, especially considering that most economies in the OECD are contracting. On the ground here in China recent visits to Chengdu, Chongqing, Nanjing, Hefei and Shanghai have shown consumers out buying: women are still spending on keeping up with the latest (ugly) fashions; new model bicycles appear daily on the streets of my hometown Suzhou; and tourist destinations in China are chock-a-block with stiff-capped Chinese tourists following, blinking, behind an exhausted tour guide sporting a tattered yellow flag. China’s economy has certainly slowed down, but Chinese have adjusted in ways deeply ingrained in them from having already met the challenges of thousands of years of Black Swans.

Read the whole series:

Next week: Thar Be Black Dragons in China

Next Installment in the Black Dragon Series: Managing for Black Dragons