The China Awaiting President Obama

David Shambaugh – The Brookings Institution

David Shambaugh, Nonresident Senior Fellow, Foreign Policy, Center for Northeast Asian Policy Studies
The Brookings Institution
As President Obama prepares for his first personal and presidential visit to the People’s Republic of China, expectations are high concerning the U.S.-China relationship.
Brookings Northeast Asia Commentary
What kind of China will President Obama encounter? What mood will he find the Chinese leadership in? What is China’s government wrestling with at present? How will these considerations impact the Sino-American relationship?
The kind of partner that Beijing can be for Washington is always very much conditioned by the state of China’s myriad domestic concerns. This is the prism through which Chinese leaders view the world, and their ability to pursue and respond to external partnerships is very much conditioned by internal pressures. The following are some personal impressions gained over the past three months of living in Beijing.
The Present Political Balance
While some analysts outside of China see factional divisions and coalitions in the current leadership (notably Brookings Institution Senior Fellow Cheng Li), inside of China the leadership appears remarkably cohesive. Occasionally one hears marginal complaints about one or another person or policy, but on the whole the Chinese Communist Party (CCP) leadership enjoys widespread credibility and legitimacy. Not only do they appear generally united, but they also are incredibly active. The sheer pace of leadership politics and activities is impressive. So is the substance of politics, as the party and government come forth with a steady stream of policy initiatives. They are definitely not on the political defensive.
At present, the CCP and its leadership are approximately half-way through the five-year transition from the 17th to 18th Chinese Communist Party (CCP) Congresses and Central Committees, and hence the transition to a new leadership. In 2012, at the 18th Congress, many current leaders—importantly including Premier Wen Jiabao and President/CCP General Secretary/Central Military Commission Chairman Hu Jintao—will retire in favor of the so-called “fifth generation” leadership.
Thus, in the Chinese political calendar, the early stages of leadership transition have begun. The heirs apparent seem clearly identified and signals of continuity are being sent at home and abroad. The activism of Vice-Premier Li Keqiang, who is slated to become Premier, has been particularly noteworthy. Vice President Xi Jinping, widely believed to be Hu Jintao’s successor, has also been increasingly active at home and abroad. He played a significant role in the CCP’s Fourth Plenary Session of the 17th Central Committee in September and took a highly-publicized trip to Europe in October. The fact that Xi was not appointed vice-chairman of the Central Military Commission at the Fourth Plenum surprised some, but actually it would have been very unusual for this to have occurred at this early juncture. Li Yuanchao, currently head of the powerful CCP Organization Department, just concluded a successful visit to the United States and has been the point-man overseeing internal political reform. Bo Xilai, party secretary of Chongqing and another key “fifth generation” leader, has also been very visible (some feel too visible), initiating an unprecedented crackdown and trial of local gangsters and officials. The activism of these leaders-in-waiting is an important signal to the party and population (as well as the outside world) of continuity. But, as Cheng Li’s research shows, this new generation of leaders are likely to be even more assertive and many hold more reformist visions than the current incumbents.
Beyond the leadership, the CCP is also moving ahead with internal political reform of the party apparatus. The Fourth Plenary Session, noted above, added important impetus to advancing and deepening political reform. Experimental direct elections of party committee members in Jiangsu and Sichuan were praised, and the Plenum’s concluding “Decision” approved a nationwide program to promote “intraparty democracy,” increase transparency of decision making, strengthen fiscal accountability of party committees and members, and crack down on corruption. While the Plenum acknowledged “unprecedented challenges,” the CCP has clearly decided to advance political reform (albeit within a one-party dominant system). President Obama may wish to probe this subject in his discussions with Chinese leaders.
President Obama will also encounter a People’s Republic of China that has recently celebrated its sixtieth anniversary with a massive military parade and celebration in Tiananmen Square on October 1st. This event spiked patriotic sentiment, and President Obama should understand that he is dealing with a both a confident leadership and an increasingly nationalistic nation. The rebounding economy (see below) adds further fuel to China’s growing confidence.
If there is an underbelly to this confidence it pertains to the ethnic problems in Tibet and Xinjiang, which makes the leadership very nervous. Unprecedented riots in the Xinjiang capital of Urumqi this summer and last year in Lhasa, Tibet have resulted in judicial trials, imprisonments, executions, and strong security clampdowns in each “autonomous region.” Despite all the official rhetoric concerning ethnic harmony flowing from the government in recent months—and there has been a deluge of it—the reality is that ethnic tensions remain sharper than ever. Externally, China’s campaign to demonize the exiled Tibetan and Uighur communities, particularly the personas of the Dalai Lama and Rebiya Kadeer, has only aggravated China’s relations with several countries.
Economic Optimism & Uncertainty
Fueling China’s general confidence has been the strong rebound in the domestic economy since the second quarter of 2009. The government’s unprecedented RMB 4 trillion ($585 billion) stimulus package has produced a boom in several production sectors. GDP growth is on pace to achieve 8.9 percent this year, the financial section is flush with credit and liquidity, the housing and stock markets have rebounded strongly, infrastructure projects are underway everywhere, demand for raw materials is up, inventories are declining, industrial production is recovering, re-employment is increasing, retail sales are up, and purchasing power is expanding.
The economy is back on track, and is likely to be the international engine to pull other major economies out of recession. This subject of global economic recovery will be high on President Obama’s list of priorities to discuss with China’s leaders.
However, many Chinese economists are worried that that the economy recovery is proceeding too quickly, is potentially inflationary, and there are widespread concerns about “rebalancing” the economy. There is also concern that a new injection of stimulus funding will be needed when the current round is spent. Most importantly, stimulation of domestic consumer spending is still quite inadequate—thus many economists fear China is missing a golden opportunity to reorient its growth model away from export-oriented growth to domestic consumption-stimulated growth, as the premier and government have repeatedly emphasized. Such a rebalancing is several years overdue, but the government’s stimulus package has been primarily aimed at revitalizing the export sector and hard infrastructure projects, in attempts to re-employ workers and maintain social stability. Local economists argue that the stimulus money should be targeted more directly at stimulating consumption and capital markets, while allowing the renminbi currency to appreciate more rapidly so as to lower overall exports. This would ease China’s massive trade surpluses to some extent (the surplus with the United States through August, $143.7 billion, was actually down 15 percent over 2008).
America’s and China’s contribution to global economy recovery is likely to be high on the agenda as Presidents Obama and Hu meet. They will carry forward progress made earlier in the year at the G-20 summits in London and Pittsburgh, and more recently in a bilateral context at the Joint Committee on Commerce & Trade meeting in Hangzhou.
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