09 January 2012

China’s 2012 Challenges

Andrew S. Erickson and Gabe Collins, China’s 2012 Challenges,” The Diplomat, 8 January 2012.

China enters the New Year confronting challenges and opportunities that will be shaped in turn by how its government and populace respond to them. Here outlined are twelve key items and issues that will help define 2012 for China, both at home and abroad. 2012 will be a “two-level” year in which internal and external factors are linked ever-more-clearly. As a new generation of leadership prepares to govern China, millions of citizens and netizens and their foreign counterparts will be watching Beijing’s actions more closely than ever before.

1) The run-up to Beijing’s once-in-a-decade political transition in October 2012 is likely to generate intensified clampdowns internally and assertive rhetoric abroad as China faces rising domestic challenges, and finds itself constrained internationally. Fearful neighbors may further strengthen ties with the United States. Pariah/failed state “allies” North Korea, Pakistan, and Iran will likely experience problems that affect China’s own interests. Externally, China is likely to be more intransigent than before. Internally, Beijing will resist making difficult decisions about economic reforms, particularly reforms that might harm key state-owned enterprises and monopolistic/oligopolistic concerns connected with families of political elites. Domestically and internationally, Chinese leaders will attempt to postpone difficult policy decisions until after the transition.

2) Slowing economic growth will likely increasingly expose the flaws and unsustainable nature of China’s infrastructure-driven growth model.One local banking regulator cited by Minxin Pei claims only 1/3 of the investment projects currently under construction will produce cash flows large enough to cover their debt service burden. This may rapidly reduce economic growth and commodity demand in 2012. …