The above is a February 2017 Report prepared by a Task Force for the Asia Society’s Center on US-China Relationsand the University of California San Diego’s 21st Century China Center.
Co-chaired by Orville Shell (Wealth and Power, China’s Long March to the 21st Century) and Elizabeth Economy, director for Asia Studies at the Council on Foreign Relations, the Task Force comprises a host of distinguished international relations and China experts including Thomas Christensen (The China Challenge: Shaping the Choices of a Rising Power), and David Shambaugh (China’s Future), with discussants such as Jeffrey Bader, Senior Fellow at Brookings Institution, and David Lampton, Professor and director of China Studies at Johns Hopkins School of Advanced International Studies.
The Report emphasizes the importance of America's network of alliances and partnerships and its robust set of multilateral institutions. It advocates that the United States should engage China from a position of strength, garnishing China's help in countering North Korea, brokering sound agreements for fairer trade and promoting compliance with international law and norms. In particular, it recognizes US national interest to maintain an active presence in the Asia-Pacific region and to strive, if possible, for stable and mutually beneficial relations with China.
The Report first and foremost flags up the overriding importance of maintaining the One China Policy, which has best served American national interests and those of Taiwan and the region for decades.
The Report lists six most immediate and urgent priorities - :
Work with China to halt North Korea’s nuclear and missile program
Reaffirm US commitments to Asia
Deploy effective tools to address the lack of reciprocity in US trade and investment relations with China
Intensify efforts to encourage a principled, rules-based approach to the management and settlement of Asia-Pacific maritime disputes
Respond to Chinese civil society policies that harm US organizations, companies, individuals, and the broader relationship
Sustain and broaden US-China collaboration on global climate change.
The Report also outlines 10 broad and long-term issues which need to be properly managed -
Energy and climate change
Asia-Pacific regional security
North Korean nuclear threat
Taiwan and Hong Kong
Defense and military relations
Trade and investment relations
Overall, the Report doesn't amount to a major departure from the existing strategy, with a more robust approach to attain broadly similar objectives. Perhaps a new emphasis is to secure a quid pro quo treatment of American civil society organizations in China, including American equivalents to China's Confucius Institutes in the United States. This underscores the importance of American soft-power in forging better China relations amenable to US national interest.
The above Paper dated October 2016 under the Brookings Institution's Order from Chaos Project - Foreign Policy in a Troubled World, is jointly prepared by Philippe Le Corre, visiting fellow at the Center on the United States and Europe and Jonathan Pollack, senior fellow in the John L. Thornton China Center, both at Brookings.
The Paper's thrust is informed by the following extract -
"China’s increasing economic and financial weight touches upon all major issues in the global economy. The advanced industrial states therefore need to fully assess China’s economic policies and practices and how they could affect the future order. These issues range from the rules governing trade, investment, and finance; addressing major imbalances in trade relations; cybersecurity; maritime security; climate change; terrorism; environmental degradation; global poverty alleviation; the role of nongovernmental organizations; the evolution of civil society; and intellectual property rights, to name some of the more important areas.
Moreover, these issues concern the future of governance within China as much as governance between China and the outside world. In this paper, we explore how Europe and the United States might move toward more complementary conceptions of their respective relationships with China.
Though there are areas of commonality between Europe and the United States, their separate identities and interests also reveal significant differences, if not outright divergence. EU-wide and country-specific engagement with China have accelerated dramatically over the past decade, underscoring the challenge of coordinating EU and U.S. policy approaches. Sustainment of the global economic order in the absence of China’s full commitment to existing practices and norms would prove very difficult, especially if China is intent on developing alternative concepts of global governance.
The United States and Europe thus face a common strategic task. Both must ensure that China’s increasing power does not undermine the principles and policies that have enabled unparalleled economic prosperity across multiple decades. They must reaffirm a shared commitment to this institutional framework, while enabling China to emerge a full-fledged participant in the global economy."
Differences of opinion and emphases between the United States and Europe notwithstanding, the Paper recommends a number of China-related priority areas for US-EU coordination, including Investment, Asian Infrastructure Investment Bank (AIIB), One Belt, One Road (OBOR), Rule-based International Order, Climate Change and Civil Society.
An in-depth 34-page research Paper dated 2016 by Mikk Raud of the NATO Cooperative Cyber Defence Centre of Excellence (CCDCOE) in Tallinn, Estonia examines China's cyber challenges from an integrated set of social, economic, political, military and national strategic perspectives.
This delves into how US global dominance in cyber technologies and infrastructure is seen as posing security threats to China, how cyberspace is being defined within China's society, how a control-mindset has been developed and entrenched, and how cyber capabilities and innovation are viewed as essential for China national renaissance.
The Paper carefully reviews published high-level Chinese government documents on cyber policies and strategies, including those of the State Council. It dissects China's strategic cyber governance structures, including civilian cyber administrative agencies as well as those in the People's Liberation Army (PLA), such as the 3rd and 4th departments of the General Staff Department and the newly constituted Strategic Support Force (SSF), including aspects of cyber warfare.
The recent creation of a Central Internet Security and Information Leading Group under President Xi Jinping's personal responsibility speaks volumes on how importantly China regards cyber strategy as a vital component of national security as well as China's trajectory to great power status in a new Cyber Age.
China’s Five Year Plan 2016-20 aims to shift to higher value-added and more sustainable development, doubling 2010 national income by 2020. Many China-watchers remain largely unimpressed. Some conclude that China is now stuck between a rock and a hard place. The current model is unsustainable without far-reaching structural reforms while Beijing remains nervous and appears to muddle through with financial stimulus. The way forward seems pointed more to sunset rather than renaissance.
Let’s try to see through the mist.
According to the Premier’s latest Work Report in Beijing, GDP grew by 6.9% to $10.3 trillion in 2015. 13.12 million urban jobs were created, with 7.4% rise in per capita disposable income and a reduction of 14.42 million rural persons below the poverty line. Utilized direct foreign investment amounted to $126.3 billion while outbound foreign direct investment grew to $118 billion. This picture of slowdown does not seem to signal impending paralysis.
Let’s turn to consumption and services.
Consumption seemed to have stalled from 38.3% of GDP in 2006 to 38.2% of GDP in 2015. This comparison, however, ignores the expansion of economy from $2.3 trillion in 2005 to $11.3 trillion in 2015. A similar percentage of a doubled economy equals tremendous growth. Chinese private consumption growth over 2005-14 bested major economies, averaging 8.9% annually compared with 7.3% for India and 1.8% for the United States. Click here
Economic slowdown notwithstanding, evidence points to considerable pent-up demand. China’s “Singles' Day” online shopping in November 2015 splurged $9.3bn in 12 hours. Outbound Chinese tourists number 100 million annually. Galleries Lafayette in Paris continued to report strong sales to Chinese tourists, which accounted for 33.7% of sales in 2013-14. An addition of 260 million affluent Chinese consumers is expected in the next decade. Click here Additionally, McKinsey & Co estimates that China's working and retirees will account for 18% and 10% respectively of global urban consumption growth from 2015-30.
As for services, this sector started to exceed the contribution from industrial production in 2012. Output of services as a share of GDP in 2015 is estimated to total 49.2%, compared to 41.9% for industry. Click here
Much has been made of “supply-side reform”. What this means are de-stocking excess capacity, de-leveraging debt, streamlining bureaucracy, reforming state-owned enterprises, liberalizing currency and interest rate, and providing better social security and a greener economy.
China is drastically reducing excess coal capacity in developing a greener economy. China's coal consumption fell by 2.9 % in 2014 and by 5 % in 2015. As a result, global CO2 emissions may have declined by about 0.6 % in 2015, an astonishing outcome, if confirmed. China reduced its energy consumption per unit GDP by nearly 20% from 2006-2010, and a further 16% reduction by 2015. At this rate, China may achieve her Paris climate commitments well before the 2030 target. Click hereand hereThis Five-Year Plan is the greenest ever yet, aiming to deliver 45% carbon intensity reduction by 2020. Click here
There is likewise much de-stocking in the steel industry, using online trading to help speeding up the process. Click here
It is therefore no longer meaningful to correlate China’s growth with electricity consumption, a source of skepticism with China’s real GDP growth rate. The former “Li Keqiang Index” has become obsolete. Click here
As for state-owned enterprises (SOEs), China wants them to become internationally competitive, playing the transitional role of South Korea’s chaebols. A plan is recently launched to transform 112 SOEs into 40 bigger conglomerates with a view to eliminating duplication, enhancing synergy and streamlining corporate efficiency. The recent merger between stated-owned train-makers CNR and CSR Corporation is also a case in point. More of such mergers can be expected.
Debt, however, remains a ticking time bomb. As for household debt, a looming mortgage crisis is not inevitable as gearing remains comparatively low and stringent measures are introduced to curb speculation. Corporate debt is more worrying. China’s central banker Zhou Xiaochuan has alluded to substituting it with equity financing. That cannot be effective without a further opening of China’s capital market, supported by sophisticated regulatory infrastructure. This liberalization will also enhance free capital flow needed to boost the renminbi’s global status, on which China sets great store. Recent reflex actions and immature market expediencies notwithstanding, China’s learning curve must not be conflated with resisting, let alone rolling back financial reform.
With shrinking demographics, overcoming the “middle-income trap” without jumpstarting productivity seems an impossible task. A great deal depends on innovation and quality of the workforce. China’s education spending has grown by 20% annually since 1999. Adding some 7 million university graduates a year, China is poised to have some 200 million graduates by 2030, more than the entire US current workforce. Moreover, China is on track to become the world’s top R & D spender by around 2019. China’s human capital is further enriched by overseas Chinese student returnees. 364,800 students returned to China in 2014, an increase of 3.2% over 2013. Since 1978, a total of 3.5 million Chinese have studied abroad. The total return rate to 2014 stands at 74.5%, thanks in part to an “overseas professional returnees program” with attractive terms. Click here
According to the World Intellectual Property Organization (WIPO), China has been the world’s top filer of patents and trademarks every year since 2012, responsible for a third of all patents filed. While quantity does not equal quality and China still lacks Nobel Laureates, world-class Chinese entrepreneurial disrupters* are beginning to emerge to define the rules of e-commerce. According to a report in the New York Times, Chinese start-ups are poised to take leap in developing a driverless car.
(*China’s Disruptors – How Alibaba, Xiaomi, Tencent, and other companies are changing the rules of business, Edward Tse, Penguin Random House, UK, 2015)
What is more, China has been transiting from a model based on "Make in China", to "Created in China", through to "Owned by China". Recent examples include Wanda's万达集团 acquisition of AMC and Legendary, one of United States' largest cinema chains and film studios; Flagship Entertainment Group 旗舰影业, a new joint venture between China Media Capital (CMC) 华人文化产业投资基金 and Warner Bros Entertainment for global film production and distribution; and the acquisition from KKR by Shandong Ruyi 山东如意纺织集团有限公司, one of China's largest textile producers, for a 70% stake in SMPC, a leading French fashion company.
Yes, China is clamping down on civil society. While charting a potentially turbulent course towards the 2020 goals, stability trumps everything else. Meanwhile, however, a new charity law has just been adopted to promote home-grown philanthropy. According to PEW, an independent public opinion research center based in Washington DC, while corruption, pollution and inequalities remain Chinese people’s top concerns, there is widespread belief that standard of living has improved. In 2008, 66% of Chinese said their personal finances were good. In 2015, 72% hold this view. Warts and all, how the country is managed seems to retain majority support. There is no mileage for regime change.
Do I want to bet on China’s chances of fulfilling the Five Year Plan? Probably not, as the tasks ahead are herculean and many black swans could appear. But considering her track record, I am not convinced that China is now so hamstrung that she can only sleepwalk towards sunset.
China has formally approved the Five Year Plan (2016-20), which aims to double 2010 income levels by 2020, striving to overcome the "Middle Income Trap" towards a moderately well-off economy. Details of the Five Year Plan are contained in the full textof Premier Li Keqiang's Work Report delivered at the 2016 National People's Congress/Chinese People's Political Consultative Conference (NPC/CPPCC) "Two Sessions" on 5 March, 2016.
The Plan marks the "opening years" of a make-or-break battle to transit to a different development model. The desired shifts are nothing less than dramatic, from exports towards services and domestic consumption, from labor and energy-intensive manufacturing towards innovative, higher-technology and higher value-added production, and from growth characterized by quantity to quality and ecological sustainability.
Considering China's size and diversity, the transformation is unlikely to happen without upheaval, pain and dislocation, including a relatively slower growth rate. My live TV interview on 16 March 2016 with ABC (Australian Broadcasting Television) highlighted some of the domestic and external challenges facing the Five Year Plan.
Those who focus exclusively on China's economic convulsions and short-term stimulus measures are generally underwhelmed by the new Five Year Plan. Download BBVA - CHINA Five-Year Plan 2016-20Amidst Party-speak characteristic of the "Two Sessions", it is easy to lose sight of some game-changing realities.
Notwithstanding weak global economic conditions, China’s economy has grown from $2.3 trillion in 2005 to $11.3 trillion in 2015.Personal per capita disposable income increased by 7.4% in real terms, overtaking the growth rate of the economy. Premier Li pointed out that one percentage growth now equates in size to 1.5 percent five years ago.
Consumption's share of a much larger economy signifies tremendous growth. According to a reportof the US Congressional Research Service of 21 October, 2015, the growth of Chinese private consumption over 2005-14 was among the fastest of any major economy,averaging 8.9% annually compared with 7.3% for India and 1.8% for the United States (Fig. 25, p.35). Evidence points to continuing surges of private consumption even when the country’s overall growth is slowing down. China is already the world’s top market for “e-tailing”, valued at US$615 in 2015, bigger than Europe and the US markets combined. The “Singles' Day” in November 2015 splurged $9.3 billion in 12 hours on world's biggest online shopping day. Clearly there is much pent-up demand. Under the Five Year Plan, more supportive measures (e.g. lower taxes) will be provided to boost consumption.
China's economic transformation necessitates turning some 100 million rural migrants into working urbanites and consumers.The household registration system (hukou) has been changed to provide them with social security and children education on par with urban citizens. In 2015,7.72 million government-subsidized housing units were completed in urban areas. In 2016, 21 million new job-training opportunities will be provided to assist rural migrants in urban relocation.
According to the Congressional report, in 2015, services as a share of GDP grew to 49.2%, surpassing industry's at 41.9%. This tallies with the Premier's reported increase of services' share to 50.5% of the GDP for the first time. Services will be further promoted in the coming years.
Innovation and private enterprise have registered significant headway. Business startups and innovations flourished, with newly registered businesses rising by 21.6% in 2015, averaging 12,000 new businesses per day. The Made in China 2025 initiative has been introduced to upgrade manufacturing nationwide. By 2020, investment in research and development is expected to reach 2.5% of GDP. The aim is for contribution of scientific and technological advances toward economic growth to reach 60%.
The Premier reiterated the imperative of state-owned-enterprise reform, including "zombie enterprises".SOEs are to have mixed public and private ownership. Some will be transformed into state-owned investment companies (similar to Singapore’s Temasek). Measures are introduced to drastically reduce over-capacity, excessive stock, and over-indebtedness, using instruments such as packaged sale of non-performing loans. At the same time, local government bondsare issued to replace outstanding debt, lessening interest payment burdens. Fiscal, tax, financial, and other key reforms were deepened. Pilot free trade zones were established in Guangdong, Tianjin, and Fujian based on the model of the China (Shanghai) Pilot Free Trade Zone. These are all part of a Supply Side Reformdesigned to achieve a leaner, more streamlined, higher-quality and more competitive economy.
Vigorous measures are introduced to combat air pollution, cherishing a "beautiful" China Dream of "green hills, clear waters, and blue skies". According to a Roadmap of Chinese Academy of Sciences, fossil energy’s share of the nation’s total energy consumed is expected to decline from 92.7% in 2007 to 45% by 2050, while renewable energy is expected to rise from 6.5% to 45% and nuclear energy from 0.8% to 10% over the same period. (Science and Technology in China: A Roadmap to 2050, Strategic General Report of the Chinese Academy of Sciences, Science Press Beijing, Springer Heidelberg Dordrecht London New York, 2010). As reported by the Brookings Institution, President Xi Jinping, at a high-level meeting in June 2014, called for a sweeping energy revolution in China in five areas: demand, production, technology, institutional governance, and global markets. Among the objectives are energy efficiency, reduced energy intensity, energy sustainability, and reduction of emissions. Over the period 2016-20, water consumption, energy consumption, and carbon dioxide emissions per unit of GDP are to be cut by 23%, 15%, and 18%, respectively, while forest coverage is to reach 23.04%.
By way of Intended Nationally Determined Contribution (INDC) under the COP21 Paris Climate Agreement, China committed, with reference to 2005 levels - (a) to achieve peak carbon dioxide emissions around 2030; (b) to lower emission intensity per unit of GDP by 60-65%; (c) to increase the share of non-fossil fuels in primary energy consumption to around 20%; and (d) to increase forest stock by around 4.5 billion cubic meters. A 20-billion-yuan (about US$3 billion) China South-South Climate Cooperation Fund will be set up to support other developing countries in combating climate change. China's INDC aims to double wind capacity to 200 gigawatts and to more than triple solar capacity to 100 gigawatts by 2020 from 2014 levels. This expansion is supported by the dramatic growth of non-fossil generation capacity over 2010-2014. Solar capacity jumped by 3,161.6% to 28.05 gigawatts, wind capacity by 225.8% to 96.37 gigawatts, nuclear by 83.7% to 19.88 gigawatts, biomass by 72.4% to 9.48 gigawatts, hydro by 39.7% to 301.83 gigawatts, and geothermal by 7.1% to 0.03 gigawatts. Overall, the increase had been 73.3% to 455.64 gigawatts in just four years.
In order to reduce emissions by 40-45% by 2020 relative to 2005, coal consumption is being tightened. A strenuous battle against air pollution and coal usage started a few years back. In September 2013, six ministries jointly launched the Air Pollution Prevention and Control Action Plan in the Beijing-Tianjin-Hebei Region. This requires PM2.5, or “fine particle,” concentrations in the Region to be reduced by 25% from 2012 level. The Region’s total coal consumption is to be reduced by 83 million tons by 2017.
An Environmental Protection Law was enacted effective 1st January 2015, including accumulative fines with no ceiling, provision for law suits by environmental NGOs, and sharpening accountability of local governments. An Environmental Impact Assessment system will be embedded in relevant legislation. A new Air Pollution Prevention and Control Law came into force on 1st January, 2016. Laggard cities are required to publish detailed plans to achieve emission reduction targets with public input and regular updates. Party secretaries are held to account for their green credentials in judging their promotion prospects.
At the 2013 Communist Party’s 18th Central Committee Third Plenum, China decided for markets to play a decisive role in allocating resources. Environmental market instruments include price reforms, subsidies and taxes, and emissions trading schemes (ETS). Seven pilot ETS have been launched over 2013-2014: Shenzhen, Shanghai, Beijing, Guangdong, Tianjin, Hubei, and Chongqing. They apply to energy-intensive sectors covering 35-60% of the total emissions of the respective region and 10% nationwide. These pilots combined make up the second-largest ETS in the world after Europe. They translate into 650 million to 700 million tons of CO2 in 2014, compared with 2.1 billion tons in Europe, 382 million tons in Australia and 165 million tons in California. A national emission trading system (ETS) is expected to be launched in 2017 covering key industry sectors such as iron and steel, power generation, chemicals, building materials, paper-making, and non-ferrous metals.
China is also considering carbon taxes. At the China-U.S. Strategic and Economic Dialogue in July 2013, Finance Minister Lou Jiwei confirmed that China would expand environmental taxes to include carbon in due course.
The share of non-fossil fuels in primary energy consumption is mandated to expand to 15% by 2020 and 20% by 2030. To achieve these targets, a "green dispatch system" is to be implemented in favour of renewable sources in electricity distribution, supported by rapidly growing solar and wind capacities. Clean coal measures, coal caps and coal-free zones are to be introduced while vehicle fuel quality standards are to be enhanced.
Half of China’s energy use today is subject to mandatory efficiency standards. With a national emissions trading scheme expected in 2017, the Chinese economy is on the way towards 85% less energy-intensity compared to the past 25 years. With large-scale deployment of wind, solar, hydro and nuclear power, China’s CO2 emission growth is expected to flatten, to peak around 2030.
To realize the above goals, half a trillion RMB (UD$ 77 billion) has been earmarked to invest in housing, agriculture, rail network in inner provinces, technological upgrading, innovative industries, energy conservation, ecological re-construction, education, healthcare, culture, sports and poverty relief. Some of this investment are prone to misinterpretation as short-term stimulus. Click here However, it is evident that the progress outlined above has not come about as a result of opening the spigots.
On civil society, a new law is introduced to formally recognize and regulate non-government and charitable organizations. Emphasis is also being placed on the Rule of Law and accountable governance. All of the above, along with the anti-corruption campaign, are imperatives to reboot the legitimacy of the Communist Party.
Last year alone, 13.12 million new urban jobs were created amidst difficult economic conditions worldwide. The 13th Five Year Plan (2016-20) calls for a total of 50 million-plus new urban jobs over the next five years. The targets in the new Five Year Plan do not appear over-ambitious compared with those in the preceding Plan (2010-15), which has been successfully achieved. Indeed, successive Five-Year Plans have a consistent record of successful realization.
Implications of the 13th Five Year Plan (2016-20) for the rest of the world would include the following -
Demand from China for resources is set to slow down further, including steel and other minerals.
More labor-intensive operations are likely to move offshore.
Increased demand can be expected for branded consumer goodsfor China's rising middle-class.
More capital will be going out to seek investments, under the One Belt, One Road initiative, in countries including Europe with UK poised to be a prime target ( McKinsey & Co - China 2016 )
More demand for joint ventures in high-technology and green businesses.
Reforming the Militaryis part and parcel of President Xi Jinping's "China Dream" of national renaissance by restoring the nation's historic world prominence.While China's military modernization and expenditure have been advancing significantly over the years, the 2016 Military Budgetregisters the first single-digit rise (7.8%) since 2010, much smaller than originally expected by the rest of the world. The People's Liberation Army is to shed 300,000 soldiers. The whole military command system and configuration have been totally streamlined and revamped. The Central Military Commission is put in overall command with military regions transforming into all-dimension combat-ready bodies, including integration of the army, navy and air force and "rocket (missile defense) units".
As I said at the TV interview, China's growing military capabilities to defend her territorial claims and integrity are bound to rattle relationships with her neighbors and with the world's current superpower, the United States. No doubt, the relationship between China and the United States is set to define the world order in the 21st century.
All in all, China's Rise is set to present epochal challenges as well as opportunities. In short, it needs to be better understood and carefully managed by all nations.
My live TV interview on 16 March 2016 with ABC (Australian Broadcasting Television) highlighted some of the domestic and external challenges facing the Five Year Plan (2016-20), which is no less than a historic watershed for China's changed socioeconomic trajectory.
China has opened 2016 with another roaster-coaster market crash. Continuing capital outflow anticipates RMB’s perceived downward slide and risks of slowing growth under the “New Normal”. Although a Goldman Sachs Investment Strategy Group report Download 2016OutlookLastInningsthinks a hard-landing is a negligible probability, growth in 2016 is forecast to range between 5.8% to 6.8%, testing Premier Li Keqiang’s reportedly-suggested 6.5% as the required minimum.
Environmentally, the signs have not been propitious. Beijing sounded the highest possible “red-alert” in December as the city was repeatedly choked by smog.
China’s neighbourhood remains problematic. A landed test flight on reclaimed land in the disputed Spratly Islands in the South China Sea further rattled the United States and its allies. Click here
However, fixating on China’s travails misses the point. Indeed, these may be considered birth pangs as a new China struggles to be born. Contradictions abound, reminiscent of Charles Dickens' "It's the best of times. It's the worst of times." The old is withering away while the new is sprung upon the unwary across a wide front. Click here
According to Natixis, a French corporate and investment bank, the die is cast for a series of tectonic shifts towards a new China. With the RMB having appreciated by some 50% since 2005, exports such as office machines, footwear, textiles and clothing are plummeting. However, a more expensive RMB will boost the consumer power of a rapidly- expanding urban population. 81 million more urbanites will be added by 2020, pushing the urbanization rate from 54.8% to 60%. Dynamic consumption growth is expected in leisure and other quality-of-life products and services. Industry is likely to be driven more by research-based innovation, particularly in the internet, semi-conductor, robotics, and nuclear energy sectors. Meanwhile, China is becoming a more proactive and outward-looking global player. Backed by new financial institutions like the Asia Infrastructure Investment Bank, China’s One Belt, One Road trans-continental initiative is beginning to take shape.
According to Kevin Rudd, president of the Asia Society Policy Institute in New York, China in 2016 will be preoccupied with preparations for a new leadership team, to be unveiled in the 19th Party Congress in 2017. Apart from President Xi and Premier Li Keqiang, the rest of the current Politburo Standing Committee Members will have reached retirement age. A proactive and assertive foreign policy is expected to continue in face of Taiwan’s changing political ecology and developments in the South China Sea. Click here
2016 will be a “ground-breaking” year for China to realize the "two-centenary" ambitions. These are to become (a) a moderately well-off country by 2021, the 100th anniversary of the Communist Party of China (CPC) and (b) "a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious" by 2049, the 100th anniversary of the founding of the People's Republic of China (PRC). The first aim would be crucial to the second. Click here
Three key "hard-battle" grounds are highlighted. The first is economic restructuring. Ahead of the much-awaited March release of the 13th Five Year Plan (2016-20), Beijing's Central Economic Work Conference has unveiled an economic blueprint, focusing, for the first time, on "supply-side reform". The required structural adjustment includes de-stocking of overcapacity, state-owned enterprise reform, currency and interest rate liberalization, debt and deflation management, old-age healthcare and a greener and more sustainable economy. On the cards are subsidized sales of empty housing to migrant workers and innovative reforms to enhance productivity in finance, natural resources, manpower, equipment and technologies. Click here
Another "hard battle" ground is the eradication of poverty. Notwithstanding rising affluence, some 250 million Chinese (18% of the population) still subsist on less than $2 dollars a day. Gross economic inequality remains a threat to the CPC's legitimacy as a governing Party.
The third "hard battle" ground is military transformation. This aims to reduce the size of the People's Liberation Army (PLA) by 300,000 strong and to revamp the entire operational and strategic command structures spanning the Military Commission, PLA regions and strategic units. It is designed to shape capabilities to fight and win warfare in the 21st century, including information and space warfare . Central to this "hard battle" is the ongoing anti-corruption campaign covering the military.
These mammoth tasks presage a struggling transition in 2016 as the Chinese juggernaut’s about-turn continues to make waves in economic, social, financial and geopolitical spheres.
Perhaps the most challenging transition is towards a freer, more open and just society where the rule of law, rather than "rule by law", will be upheld. One of the key essentials is to subject the Party to check and balance held to public account. A crucial component is an autonomous or "independent" judiciary. Already, measures are in hand to transfer the power of judicial appointments to the provincial level. There are also moves to introduce a system of "circuit courts". Huge problems remain, including the lack of professional judges and the whole bureaucratic culture of a one-Party state.
Meanwhile, a new domain of opportunities is appearing on the micro-economic and business horizon, including innovative manufacturing, agricultural imports, wealth management services, green and quality-of-life businesses, movie entertainment, both online and offline, and football, according to a McKinsey report.
Following the Paris COP21 Climate Summit, dynamics are in place which augur well for a more ecologically-balanced China. A new Air Pollution Prevention and Control Law came into effect on 1st January. This has incorporated planning mechanisms in the US State Implementation Plan and the UK’s Local Air Quality Management program. Laggard cities are now held accountable for targets with public inputs and monitoring. Stringent measures are being introduced to curb coal usage, including caps and coal-free zones. While lip-service and slack enforcement remain huge obstacles, the Environmental Protection Law effective 1st January 2015 mandates accumulative fines and holds local governments to account. Indeed, party secretaries’ career credentials are being judged on how well they perform in helping to create a more harmonious and greener China. Click here and here
How China evolves is bound to modify the world order, for better or worse. As Henry Kissinger observes*, history is to be discovered, not declared. Indeed, China’s transition in 2016 and beyond opens up a whole new vista of Olympian competition and win-win partnership in helping shape a Rising China. As cautioned by President Xi Jinping, misgivings notwithstanding**, the "Thucydides Trap" engulfing rival great powers doesn’t have to be sprung.
China 2016 is likely to be characterized by a host of contradictions, perhaps best described by Charles Dickens' "It's the best of times. It's the worst of times." The old is withering away while the new is sprung upon the unwary.
A slowing China with a roller-coaster stock market appears now the New Normal. Notwithstanding recurrent predictions of a hard-landing, if not total collapse, Goldman Sachs January 2016 Investment Strategy Group Report maintains a sober assessment. Growth in 2016 is expected in the range of 5.8% to 6.8%. But a hard-landing is considered a negligible probability. Download 2016OutlookLastInnings
Kevin Rudd, 26th Prime Minister of Australia and president of the Asia Society Policy Institute in New York, writes in the Time Magazine online (21 December, 2015) offering his read on China's priorities in 2016.
Meanwhile, ahead of the much-awaited March release of the 13th Five Year Plan (2016-20), Beijing's Central Economic Work Conference has unveiled an economic blueprint for the coming year, focusing, for the first time, on "supply-side reform". This translates into streamlining bureaucracy and eliminating excess capacity e.g. through subsidized sales of empty housing to migrant workers from rural areas. It also means structural reforms to enhance productivity in areas including finance and resources such as land and materials as well as manpower, equipment and technologies.
Economic restructuring is one of the three key "hard-battle" grounds (for which 2016 will be a "ground-breaking year") to realize China's "two-centenary" ambitions. These are - (a) to become a moderately well-off country by 2021, the 100th anniversary of the Communist Party of China (CPC) and (b) to become "a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious", by 2049, the 100th anniversary of the founding of the People's Republic of China (PRC). The first aim would be crucial to the achievement of the second. Click here
Another "hard battle" ground is the eradication of poverty. Notwithstanding China's breakneck economic growth and rapid income rises, some 250 million Chinese (or 18% of the population) still subsist with less than $2 dollars a day. Gross economic inequality remains a threat to the CPC's legitmacy as a governing Party.
The third "hard battle" ground is military transformation. Apart from reducing the size of the People's Liberation Army (PLA) by 300,000 strong, this aims to completely modernize the entire military forces, streamlining the strategic command and operational structures between the Military Commission, military regions and strategic military units, and shaping the military's capabilities to fight and win warfare in the 21st century, including information and space warfare. Central to this "hard battle" is the ongoing anti-corruption campaign covering the military.
2016 is likely to witness a struggling transition to a New China. The defining dynamics and data are expounded upon in an in-depth report by The Beijing Axis - The China Compass- in October 2015. However, this reportomits coverage of perhaps the most critical area of China's transition, that towards a freer, more open and just society where the rule of law, rather than mere "rule by law", is upheld. One of the key essentials, apart from a Party subject to check and balance held to public account, is a more autonomous, or "independent" judiciary.
Suffice to say that the Party is alive to this challenge. Measures have been introduced to transfer the power of judicial appointments to the provincial level. There are also moves to introduce a system of "circuit courts". Huge problems remain, including the lack of professional judges. Nevertheless, a step forward, however limited, is far better than standing still, let alone rolling backwards.
On the micro-economics and business side, a report by Gordon Orr, director emeritus of McKinsey, What might happen to China in 2016, expounds on the socioeconomic dynamics such as slower growth, re-centralization, fewer jobs, quality of life goals, greener economy, wealth management, innovative manufacturing, massive agricultural imports, spread of satellite towns, explosive growth in movie entertainment, both online and offline, and interestingly, football.
However 2016 may turn out for China, it is unlikely to be anything but eventful.
Dialogue, a CCTV News (English Channel) panel discussion, focuses on President Xi's 2016 New Year Speech which outlined the nation's direction for the coming year. I appeared as a overseas guest on the panel on the question of China's anti-corruption campaign, including the financial sector. The panel later discussed the newly introduced Two-Child Policy.