China 101

Top China issues to watch in 2017

PUBLISHED : Sunday, 01 January, 2017, 10:03am
UPDATED : Wednesday, 04 January, 2017, 12:34pm

A lot has happened in 2016. In January, Taiwan’s independence-leaning Tsai Ing-wen won the island’s presidential election by a landslide; in July, an international court handed down a landmark ruling against Beijing’s claims in the South China Sea, and in November, Donald Trump beat Hillary Clinton to become the United States’ next leader.

As we usher in 2017, our team of reporters have put together a list of key China issues to watch out for in the new year.

1. Can China’s slowing economy keep up with its growth targets?

China has held growth steady at 6.7 per cent throughout the first three quarters of 2016, but it is still facing big challenges as the economy continues to slow.

Beijing is trying to keep the country’s gross domestic product growth above 6.5 per cent, a floor set to double its economic size by 2020.

The US Federal Reserve’s interest rate rise in December and two or three more expected increases in 2017 have forced China to reintroduce capital outflow restrictions to defend the yuan. It has also squeezed room for credit easing, with the government now tightening controls on liquidity as preventing financial risks moves up its agenda.

Why is China so afraid of US Fed’s interest rate increase?

More proactive fiscal policy, especially infrastructure construction, will be the main tool supporting growth. In 2017, the government may also raise the fiscal deficit ratio, issue more municipal and special construction bonds, and leverage private capital inflow through public-private partnership projects.

China will stay on high alert against asset bubbles, especially in property. It will likely take measures such as increasing the down payment ratio and property taxes to cool speculation in the big cities.

One worrying sign on the horizon is that recent property restrictions have slowed sales and may hit property investment – an old economic driver – in the first half of 2017.

Reporting by Frank Tang

2. How will Beijing handle Hong Kong’s chief executive election?

Beijing is expected to help its preferred choice for Hong Kong’s next chief executive garner as many votes as possible in the election on March 26, according to political analyst Lau Siu-kai, emeritus professor of sociology at the Chinese University of Hong Kong.

Beijing would do so to avoid a repeat of the scenario in the previous election in 2012, when Leung Chun-ying won the chief executive race with a record low number of votes – 689 – from the 1,200-strong election committee, Lau said.

Financial Secretary John Tsang Chun-wah and Chief Secretary Carrie Lam Cheng Yuet-ngor would hence not both be allowed to stand for election, according to Lau, as each additional candidate meant the winner would get fewer votes.

Chief executive race open to all, top Beijing official for Hong Kong affairs hints

Candidates’ popularity mattered as well, Lau said, which meant New People’s Party lawmaker Regina Ip Lau Suk-yee and Judge Woo Kwok-hing had almost no chance of landing the city’s top job even if they managed to secure the 150 votes required to run.

One focal point for the upcoming election is whether Beijing will adjust its hardline stance towards Hong Kong.

Some analysts expect Beijing’s stance to remain the same even after Leung relinquishes his role as the city’s leader. Other believe Beijing will soften its stance, pointing to the olive branch it has extended to prominent pan-democratic figures when it promised this month to grant them all permanent home-return permits for the first time in decades.

Reporting by Choi Chi-yuk

3. Can Taiwan’s President Tsai Ing-wen be squeezed into submission?

Cross-strait relations is set to be affected by a range of factors in the new year, among them US president-elect Donald Trump’s China policy, Beijing’s resolve to punish Taiwanese pro-independence forces and the independence-leaning ruling Democratic Progressive Party’s performance.

Even before taking office, Trump has already created huge waves in relations among Beijing, Washington and Taipei by receiving a congratulatory call from the self-ruled island’s President Tsai Ing-wen in early December. Days later, he went on to question whether the United States should continue its “one China” principle.

Trump’s freewheeling and unorthodox style of diplomacy threatens to make Taiwan more of a victim than a beneficiary as further backlash is expected from Beijing.

Reunification is inevitable, Beijing warns Taiwan

Beijing has shut all official communication channels with Taipei since Tsai became president in May, after she refused to acknowledge the “1992 consensus” on which cross-strait ties are based. The consensus is an understanding between Beijing and Taiwan that there is only “one China” but that each side could have its own interpretation of what constitutes “China”.

Taipei says Beijing has also limited the number of mainland tourists to the island, hitting its already-struggling economy.

In December, small West African nation Sao Tome and Principe severed ties with Taipei in a move Tsai has described as Beijing’s diplomatic suppression aimed at Taiwan. Last March, Beijing resumed relations with Gambia, another former Taiwan ally in Africa. Taipei has diplomatic ties with just 21 countries now, mostly small states.

Taiwan’s economic outlook appears dim and its international space is also narrowing as Beijing looks set to continue its hardline stance towards the island.

In 2017, if Beijing refuses to budge on cross-strait relations, we will see if Tsai will soften her stance instead and adopt a more flexible approach in dealing with the mainland.

Reporting by Kristin Huang

4. How will Sino-US relations play out after Donald Trump takes office come January 20?

It looks like a bumpy road ahead for Sino-US relations in 2017 after Donald Trump’s inauguration as President of the United States on January 20, given his provocative remarks on China and his choice of hawkish China policy advisers so far.

No date has been set for bilateral visits involving either Trump or China’s President Xi Jinping, but the two heads of state are bound to meet at multilateral gatherings in the coming year, such as July’s G20 summit in Hamburg, Germany, or the Asia-Pacific Economic Conference (Apec) summit in Da Nang, Vietnam, in October.

How the two leaders greet and interact with each other and whether they hold bilateral talks on the sidelines of these summits will be an indicator of the health of Sino-US ties.

Why Trump’s blunt approach will put US relations with China on surer footing

Trump has repeatedly blamed China for the trade imbalance and loss of American jobs, and vowed to declare China a currency manipulator on his first day in office. He has also threatened to impose up to 45 per cent taxes on Chinese imports and asked American firms like Apple to move their manufacturing bases back to the US.

If Trump does penalise China in trade, some observers say Beijing may retaliate by similarly cutting US imports or sanctioning US firms, thereby starting a “trade war”.

The incoming US president sees the “one China” principle as a bargaining chip to pressure Beijing into trade concessions, but Beijing has warned that the principle is a bottom line not open for compromise and also the basis of Sino-US relations.

The new year may see tensions across the Taiwan Strait build up further, with more American arms sales to Taipei, more controversial comments from Trump about the self-ruled island in relation to Beijing, or even meetings between American and Taiwanese leaders.

Such moves might up Trump’s ante in negotiations with China, but could also provoke strong reactions from Beijing – even retaking the island by force in a worst-case scenario. Beijing still views Taiwan as a renegade province to be retaken by force if necessary.

How a snub of the one-China policy almost led Beijing and US into war in the 1990s

Other buttons Trump might seek to push with Beijing upon taking office include meeting Tibet’s exiled Dalai Lama, raising China’s human rights record or commenting on Hong Kong’s democratisation process.

If the two global powers hope to manage their differences and work well under the Trump administration, they will have to seek new areas for cooperation and common ground on which they can build trust.

During US President Barack Obama’s administration, he and Xi both agreed on climate change and cooperated well in advancing related policies. Trump can consider working with Beijing to counter terrorism and on coming to resolutions in the Middle East peace process.

Reporting by Liu Zhen

5. Is the US-led TPP well and truly dead and will China’s RCEP emerge the winner?

Prospects for international trade have taken a hit with the victory of Donald Trump, who has vowed during his US presidential campaign to pull out of the Trans-Pacific Partnership and end a free-trade agreement with Canada and Mexico.

The TPP, which is led by the US and has been signed by its 12 member countries in the Asia-Pacific, has yet to be ratified. Many analysts believe the 12-member trade pact will fall apart without American participation, and now the focus has turned to the Regional Comprehensive Economic Partnership (RCEP), widely dubbed China’s answer to the TPP.

Is Trans-Pacific Partnership trade deal really as dead as Trump and Clinton say it is?

RCEP negotiations among the 10 Asean (Association of Southeast Asian Nations) governments and six FTA partners – Australia, China, India, Japan, South Korea and New Zealand – are expected to conclude by the end of 2017, according to Malaysia’s trade minister Mustapa Mohamed.

Other nations, including Peru and Chile in Latin America, have also said they are ready to begin talks to join the Chind-led pact. The pact is also likely to be discussed during the Apec summit in Vietnam in October.

Reporting by Laura Zhou

6. How and when exactly will Brexit happen and what will be the implications for China?

In June 2016, Britain voted to leave the European Union. The question now is when “Brexit” will actually happen, as the British government will first have to trigger Article 50 of the Treaty of Lisbon to kickstart the process.

British Prime Minister Theresa May has said this will take place before the end of March, but an exact date was yet to be set.

Why Brexit could strengthen ties between China and Britain

News of Britain’s intention to leave the EU has already made some impact in China, with a lower pound-yuan exchange rate, more tourists and students planning to visit or study in the UK, and more investors injecting cash into British property.

With the country splitting from the EU, May’s administration will have to negotiate trade deals with individual states. Among them, China will likely be one of their top priorities, given the size of the Chinese market, among other factors. Leaving the union may give London more flexibility to strike more mutually beneficial deals with Beijing.

Reporting by Wei Qi

7. How will China conduct diplomacy over the South China Sea and with its Asian neighbours?

With an increasingly assertive China jostling for regional leadership, much remains to be seen if Beijing will mend ties with its Asian neighbours in the new year.

Beijing’s territorial claims and brusque diplomacy have strained historically friendly relations with many key neighbours, forcing them to pick sides in the rivalry between China and the US.

Doubts over China’s peaceful intentions culminated in the landmark ruling in July by the Permanent Court of Arbitration in the Hague, which rejected Beijing’s claims over much of the disputed South China Sea.

Beijing has insisted it will not accept the international court’s ruling, but the decision is still seen as too important to ignore as it set a legal benchmark for any future settlement of the long-standing disputes.

Conflicting claims: an interactive package

It is worth noting that China has so far refrained from taking further provocative steps such as large-scale island-building activities in the contested waters. It has also improved ties with the Philippines, which initiated the arbitral ruling.

With Manila assuming Asean chairmanship in 2017, how China continues to mend its fractured ties with rival claimants of the South China Sea – especially its Communist neighbour Vietnam – will remain a focal issue to watch.

Tensions with the US over the disputed waters have also been on the rise. In 2017, the US navy will likely increase its freedom of navigation operations to challenge China’s claims in the region. Trump has announced he will build up the US navy, increasing its current 272-ship fleet to 350.

Also this year, the People’s Liberation Army will launch its second aircraft carrier and new Type 055 guided missile destroyers. Analysts believe Beijing will likely speed up its constructions and military deployments on its South China Sea reefs.

Why the US policy on South China Sea only helps China

The sensitive and volatile Korean peninsula is another headache for Beijing.

While China hopes impeached South Korean President Park Geun-hye’s successor – who will be elected this year – will drop the controversial Terminal High-Altitude Area Defence (THAAD) anti-missile system, it is unlikely to thaw relations with Seoul immediately.

Beijing’s dilemma in reining in the unruly North Korean leader Kim Jong-un, whose nuclear ambitions has rendered him a “troublemaker on China’s doorstep”, will only exacerbate the uncertainty over the THAAD deployment and the fragile equilibrium in East Asia.

Reporting by Shi Jiangtao

8. How will China’s massive “One Belt, One Road” summit play out in May?

China has put into play its big plans to lure countries across the eastern hemisphere into its orbit with its massive “One Belt, One Road” summit in May.

The summit, which will at least match the scale of the Hangzhou G20 meeting in September 2016, is Beijing’s chance to extend its influence in the region at a time when the world is coping with uncertainty as Donald Trump takes office as the next US president.

As Trump retreats, Xi Jinping moves to upgrade China’s global power play

James Woolsey, one of Trump’s policy advisers, has previously signalled potential change in America’s attitude towards the “One Belt, One Road” initiative, saying there was a consensus in Washington that the Obama administration’s opposition to the China-led Asian Infrastructure Investment Bank – part of the belt and road plan – was a strategic mistake.

The recent Central Economic Work Conference, which set the tone for China’s economic priorities in 2017, underscored the belt and road initiatives as one of Beijing’s three key development strategies.

The initiative involves 65 countries, stretching through southeast, south, central and west Asia to the Middle East, Africa and eastern and central Europe.

Reporting by Wendy Wu

9. What changes are in store in the run-up to the 19th party congress in November?

The 19th party congress, which will see the five-yearly transition of power within the Communist Party, is expected to take place around November.

The gathering will see more than 300 full and alternative Central Committee members elected by delegates of the party congress, as well as a new Politburo and a Standing Committee.

President Xi Jinping – who was in October anointed as the party’s “core” – will face a power transition bound only loosely by non-official conventions on retirement and succession.

China’s President Xi Jinping faces his biggest political test

It remains to be seen what Xi’s new title as “core of the party” really means, as it is not an official title whose rights and jurisdiction are regulated by the party and law.

Largely free from influence of party elders – which is rare in Chinese politics – the current leadership has the flexibility to introduce change in many areas within the party.

As Xi seeks to further consolidate his power and keep his allies close, the size of the Politburo may change, retirement rules may be made even more vague, and the new leader-in-waiting may not appear as they have done in the past.

Reporting by Jun Mai

10. On the environmental front, will China meet its clean-air targets?

This year is the mid-term deadline for China’s three major urban clusters – Beijing-Tianjin-Hebei, Yangtze and Pearl river deltas – to meet their clean air targets as stated in a 2013 State Council document.

Dubbed the “10-point air clean-up action plan”, the document set air quality improvement targets for the three city clusters – a specified percentage drop in PM2.5 levels – as well as a quantified goal for Beijing to lower its average concentrations of the tiny particulate pollutants to 60 micrograms per cubic metre.

While there appear to have been improvements in the Yangtze and Pearl river deltas, the frequent bouts of smog in northern China over the past several months have raised doubts about whether the Beijing-Tianjin-Hebei region will meet their targets and the implications if it doesn’t.

Beijing sets ‘practical’ target for reducing smog this year, pushing 2017 goal further out of reach

2017 is also set to be a difficult year for green NGOs, particularly those headquartered in foreign countries, as many will struggle to find a government department – either a cabinet ministry or their local agencies – to supervise their daily work, under new laws laid down by the Ministry of Public Security.

Some staff at these foreign organisations have already voiced their concerns. The worst-case scenario might be an exodus of foreign NGOs who fail to find proper supervisors, but this is unlikely as it would spark a global backlash.

A more likely scenario is such groups, even those traditionally known for their aggression in pursuing their causes, would be tamed and think twice before acting on matters that risk provoking Beijing.

Reporting by Li Jing