China’s ‘great stagnation’ risks hard landing


china_crony-capitalismChina’s economy is stalling. The most likely economic scenario over the course of the next decade is not high growth or an economic collapse, but stagnation. If this occurs, the Chinese Communist Party (CCP) will have difficulty sustaining its ambitious national development and strategic plans. In particular, Beijing will not be able to avoid a more serious “guns v. butter” tradeoff, analysts Dan Blumenthal and Derek M. Scissors write for The National Interest:

This has sharp implications for American policy. Most importantly, while the US certainly has its own structural problems, it is far wealthier and more powerful than China, and that gap may actually grow or at least hold, rather than shrink. The dominant Sino-US relations paradigm of a declining power managing a rising power is inaccurate. A truer depiction of the Sino-American relationship is that China is a capable great power seeking to compete with US primacy in Asia, much as Russia has become a US rival in Europe and the Middle East, while Iran challenges American interests in the Persian Gulf. To attribute to China the capability to “overtake” the US or compete with it globally—or to describe the power dynamics as a “power transition” from Washington to Beijing—is at best premature.

chinacrony-cap-peiChina’s economy is facing tougher times, notes . Export-oriented mass production is no longer the growth driver it used to be and the transition to a higher-value added, innovation-driven industrial model has only just begun, he writes for The Financial Times. The ruling party’s current course of action may ensure stability in the run-up to the ruling Communist Party’s upcoming centennial celebration in 2021 – but it creates the risk of a hard landing after 2020.

Signs that Chinese President Xi Jinping is attempting to counter opposition ahead of next year’s 19th Party Congress by demonstrating support from within the Party and military are prompting widespread speculation, notes China Digital Times:

A major restructuring of top Party leadership is expected at the 2017 congress, when five of the current seven members of the Politburo Standing Committee are expected to step down. Reports of intra-Party factional politicking have been plentiful amid a shuffling of provincial leaders as the event approaches.

Meanwhile, Xi Jinping plans to extend China’s soft power using the world’s most popular sport. The goal is to train 30 million kids in the next four years and build a national soccer team by 2050 that can beat the likes of Brazil, Argentina and Germany, Bloomberg reports.

“Xi has promised to make China great,” said Andrew Nathan, professor of political science at Columbia University in New York. “Winning at sports is not necessarily quick and easy, yet with a population China’s size and a government with these kinds of resources, it is a goal that is achievable more quickly than some of the bigger goals. Winning is winning is winning – it’s not complicated, and it goes over great on TV,” added Nathan, a board member of the National Endowment for Democracy, the Washington-based democracy assistance NGO.

china Xi_Jinping-081315_jpg_250x1257_q85But reports on the likelihood of Xi remaining in power beyond 2022 miss out two important issues, says Kerry Brown, Director of the Lau China Institute and Professor of Chinese Studies at King’s College London:

The first is that if we can see rules rewritten and renegotiated in stable, law-based political systems, why assume that China, with only a very shallow history of managing orderly leadership transitions, even needs to observe any regulations in the first place? The Communist party is above all pragmatic. What works can be used till it stops working and something else fills its place. An organisation that turned 180 degrees against most of its core beliefs in 1978 is not going to let some procedural nicety get in the way in 2021-22. ….

Second, everything we know about Mr Xi shows that he is a political tactician. The essence of his task now is to maintain sustainable one-party rule, and to deliver a rich, strong country. Control is essential to that. Creating a potential successor immediately creates division. There is a risk that power will start flowing from him to someone else. He knows this because it is precisely what happened to his predecessor Hu Jintao when his elevation was announced in 2007. ….

Speculation that he might seek to stay on beyond the unwritten two-term limit has bubbled up on a regular basis, but there seems to be no reason to give it greater credibility now than before, adds Jonathan Fenby, China Chairman at TSL Research:

Such a decision would involve many political and economic factors that are still in flux. As a canny politician, Mr Xi would know the danger of making up his mind too early.

More important in the run-up to the key Communist party congress at the end of next year is not Mr Xi’s long-term future but whether his most effective lieutenant, Wang Qishan, is allowed to stay on beyond the age limit, potentially taking over as prime minister in 2018. Otherwise, as Zhou Enlai said of the 1968 riots and strikes in France, it is too early to tell.

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