2016 promises to be a make-or-break year, as a new China struggles to be born

Andrew Leung says the decisions by leaders in Beijing this year, amid a difficult transition phase, will have lasting effects on the economic, social, financial and geopolitical spheres, both at home and abroad

PUBLISHED : Monday, 11 January, 2016, 5:49pm
UPDATED : Monday, 11 January, 2016, 5:49pm

China has opened 2016 with another market crash in its roller-coaster ride. Meanwhile, capital outflows continue amid concerns about the yuan’s potential downward slide and the risk of slowing growth under the “new normal”. Although a hard landing is unlikely, at least according to a Goldman Sachs Investment Strategy Group report, growth in 2016 is forecast to range between 5.8 per cent and 6.8 per cent, testing Premier Li Keqiang’s (李克強) suggested 6.5 per cent as the required minimum.

Environmentally, the signs have not been propitious. Beijing sounded the highest possible “red alert” in December as the capital was repeatedly choked by smog.

READ MORE: Chinese military aircraft likely to land at new airport in disputed area of South China Sea in coming months, says ex-PLA officer

At the same time, China’s neighbourhood remains problematic. The recent test flight that landed on reclaimed land in the disputed Spratly Islands in the South China Sea has further rattled the US and its allies.

However, fixating on China’s travails misses the point. Indeed, these may be birth pangs as a new China struggles to be born. Contradictions abound, reminiscent of Charles Dickens’ “It was the best of times, it was the worst of times.” The old is withering away while the new is being sprung upon the unwary across a wide front.

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 yuan having appreciated by some 50 per cent since 2005, exports such as office machines, footwear, textiles and clothing are plummeting. However, a more expensive Chinese currency will boost the consumer power of a rapidly expanding urban population; 81 million more urbanites will be added by 2020, pushing the urbanisation rate from 54.8 per cent to 60 per cent.

READ MORE: Deflationary pressures to continue ‘haunting China’s economy’ this year: economists

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 Asian Infrastructure Investment Bank, China’s “One Belt, One Road” transcontinental initiative is beginning to take shape.

According to Kevin Rudd, president of the Asia Society Policy Institute in New York, China will be preoccupied this year with preparations for a new leadership team, to be unveiled at the 19th Party Congress in 2017. Apart from President Xi Jinping (習近平)and Premier Li, the rest of the Politburo Standing Committee will have reached retirement age.

A proactive and assertive foreign policy is expected to continue in the face of Taiwan’s changing political ecology and developments in the South China Sea.

This will also be a “groundbreaking” year for China to realise its “two centenary” ambitions – to become a moderately well-off country by 2021, the 100th anniversary of the Communist Party; and, 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. The first will be crucial for the second.

READ MORE: Coal or nuclear? The choice is clear if China is to stick to its pledges to reduce carbon emissions

There are three key battlegrounds. The first is economic restructuring. Ahead of the much-awaited March release of the 13th five-year plan, 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 dealing with overcapacity, state-owned enterprise reform, currency and interest rate liberalisation, debt and deflation management, old-age health care and a greener and more sustainable economy. On the cards are subsidised sales of empty housing to migrant workers and innovative reforms to enhance productivity in finance, natural resources, manpower, equipment and technologies.

Another battleground is the eradication of poverty. Notwithstanding rising affluence, some 250 million Chinese (18 per cent of the population) still subsist on less than US$2 a day. Gross economic inequality remains a threat to the party’s legitimacy.

The third battleground is military transformation, with the aim of reducing the size of the People’s Liberation Army by 300,000 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 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 checks and balances, to be 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.

Perhaps the most challenging transition is towards a freer, more open and just society

Following the Paris climate summit, dynamics are in place that augur well for a more ecologically balanced China. A new air pollution prevention and control law came into effect this month. Laggard cities will now be held accountable for targets with public input and monitoring. Stringent measures are being introduced to curb coal use, including caps and coal-free zones. While lip-service and slack enforcement remain huge obstacles, the Environmental Protection Law which came into force last January 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.

How China evolves is bound to modify the world order, for better or worse. China’s transition in 2016 and beyond opens up a whole new vista of Olympian competition and win-win partnerships in helping shape a rising China.

Andrew K. P. Leung is an international and independent China specialist based in Hong Kong