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The Challenge for China

Slow Growth, Regional Conflict Await New Leaders

Oct. 25, 2012 - 08:05PM   |  
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Not only is the United States engaged in a leadership transition, but so is the People’s Republic of China. A new Chinese leadership will confront the American presidential victor in November; indeed, that leadership will emerge in the week following the American election, as the Chinese 18th Party Congress convenes two days later.

China’s new leaders will grapple with a host of emerging issues, including rising tensions with many neighbors over territorial claims and slowing economic growth that could affect military spending.

At the Party Congress, the top leaders of the Chinese Communist Party will experience significant turnover. Particularly important will be the 24 members of the new Political Bureau (Politburo) of the Communist Party Central Committee and the Politburo Standing Committee (PSC), the true leaders of China.

For the first time since 1949, this leadership is not picked or guided by a revolutionary leader, depriving it of a major source of legitimacy. Reflecting the troubled nature of this transition, it is not clear, less than a month before the Party Congress, whether there will be seven or nine PSC members.

For national security decision-makers, not only will the Chinese civilian leadership be changing wholesale, but also the Central Military Commission (CMC), the body that actually manages the Chinese People’s Liberation Army (PLA). Due to retirement, seven of the CMC’s 10 members will be stepping down. Only Chang Wanquan (head of the General Armaments Department, responsible for weapon development and China’s space program), Wu Shengli (commander of the PLA Navy) and Xu Qiliang (commander of the PLA Air Force) can remain. Whether outgoing Party General Secretary (and CMC Chairman) Hu Jintao will stay, as his predecessor Jiang Zemin did, remains uncertain.

For the new members of the CMC, simply managing the world’s largest military will be a major task, especially as it engages in “informationization,” the incorporation of information technology into all aspects of military activities, equipment and functions.

There will be further challenges. Most pressingly, the current Chinese leadership has managed to antagonize almost all of China’s neighbors over territorial disputes. Whether it is Japan (the Senkaku Islands and the East China Sea), South Korea (Socotra Rock), most of Southeast Asia (the Spratlys and the South China Sea), or India (Arunachal Pradesh and Chinese military forces in disputed Kashmir), the Chinese are on less positive terms today than four years ago. It is possible that Chinese leaders will adopt a more conciliatory posture toward some or all of its neighbors, but until then, the PLA will have to worry about preserving Chinese claims and intimidating the various neighbors.

China’s more assertive foreign policy, in turn, has facilitated the American “pivot” strategy. Where once China was seen primarily as an economic partner, it is increasingly perceived as a growing security threat.

The leadership in Tokyo and Manila have clearly concluded that increased engagement with Washington is necessary. This will complicate PLA threat assessments, even before the U.S. introduces new capabilities as part of its “Joint Operational Access Concept” (including those associated with Air-Sea Battle).

Nor can China’s leaders solely focus on external threats. For the past two years, spending on inter-nal security has risen faster than that devoted to external security. The number of “mass incidents” continues to rise, threatening domestic security. This is exacerbated by Chinese economic policies.

Even without a pending political transition, China would still be facing an economic transition. The growth in its gross domestic product (GDP) was expected to slow around 2015, when a generation of labor force growth will give way to stability. But growth has already slowed, due to the hangover from the wild 2009 stimulus response to the financial crisis. Barring reform, it is likely to slow further in the middle of this decade.

In either case, the era of 10 percent annual GDP growth will pass and be replaced by roughly 7 percent annual growth or less. China previously could afford to spend progressively more on just about everything — essentially, guns soaked in butter. Slower growth means tradeoffs are inevitable.

While growth grabs headlines, there is a more important facet of economic transition. China has devoted such a large portion of its GDP to investment under Hu that it now far exceeds that of any market economy. China has talked for years about rebalancing from an investment- to a consumption-driven economy, but the problem has only gotten worse.

At some point in its anticipated 10-year term, the incoming Xi government must choose: rebalance toward consumption or effectively renounce market reform. The former will come at the expense of state enterprises led by high-ranking Communist Party cadres. The latter sounds much more momentous, but may actually be easier politically, since it is the direction already set by Hu and company.

The situation is difficult and, if the transition is botched, the party may have to seek legitimacy elsewhere — perhaps in a nationalist foreign policy.

Next year is the Year of the Snake, associated with even temperament and good communications skills, but also with jealousy and suspicion. For the global community, which of these traits dominate China’s new leadership will be a major factor determining the course of the coming decade.


Dean Cheng is a research fellow in the Asian Studies Center at the Heritage Foundation, Washington, and Derek Scissors is a research fellow in Asian economic policy at The Heritage. Foundation, Washington.

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