President Xi Jinping is staking all on his abilities to manage the smooth economic slowdown in a traditional state planning sense, and is likely to invoke changes in personnel if necessary to reinvigorate his economic team to ensure stability. In that light, PRS fully expects the 7% target for GDP growth to be reaffirmed when the National People’s Congress, the rubber-stamping legislature, convenes for its annual session in March.

Xi’s position is not imminently threatened, but his unmitigated approach risks tensions flaring with the state bureaucracy and the liberal reformers led by Premier Li Keqiang believing it is administrative reorganization – i.e. less bureaucracy and a faster pace of economic liberalization – which is key to preserving CCP legitimacy. Xi’s attempts to oust the faction led by former leader Jian Zemin signals no let-up in the anti-corruption purge, involving inspection teams being sent out to all institutions, from the State Council (the cabinet) and the NPC down to party and state departments at the local government level, attenuating the fear and paralysis enveloping the state apparatus.

The centralization of party control under Xi’s watch is ratcheting the risks of popular resentment among party rank and file, and will fan out to the wider population sensing a growing dichotomy between one party politics and free market economics, which will encourage more labour-led as well as other types of protest. These are routinely clamped down upon, but will send out a reminder to Xi of the need to meet growing expectations for prosperity and good governance, without which there will be even louder calls for regime change.

Potential for Escalation of Neighborly Disputes Xi’s difficulties are compounded by a range of foreign policy concerns, not least the question of North Korea, which is a problem escalating again in light of the reported hydrogen bomb test in early January and the reaction from Seoul. Although China is seeking a return to the disarmament talks process which collapsed in 2009, South Korean President Park Geun-hye playing to a domestic constituency appears in no mood for reviving a process which has failed – a position that is seemingly reinforced by the US ultimately lacking trust in Kim Jong-un and believing there is little prospect of any progress ever being made.

China has everything to lose from regime collapse in Pyongyang bringing chaos to the region and while other actors may continue to play hardball, Foreign Minister Wang Yi is likely to pursue the diplomatic channels with US State Secretary John Kerry in an attempt to defuse the situation and denuclearize the Korean Peninsular. Neighborly relations are nevertheless weakening on several fronts as China’s economy slows and the regime seeks to reinforce its authority in the region. The likely election of a new Democratic Progressive Party President in Taiwan opposing reunification is one area of concern, while South China Sea relations more generally are another, although the use of force to resolve either is unlikely to be the primary course of action.

China’s nine-dash-line territorial claims, driven by a desire to exploit natural resources, gain shipping lanes and fishing grounds, and notably extend its security cordon nevertheless raise the risks of a dangerous miscalculation which in extremis could see the area become a flashpoint for military engagement especially since China’s insistence on historical claims to the Paracel and Spratley Islands is not heading for any consensual resolution. Diplomatic efforts and objections sought under the UN Convention of the Law of the Sea are unlikely to wash in Beijing, which will ignore any legal rulings and has maintained a provocative stance by testing aircraft on an airstrip on a reclaimed reef which many suspect is a precursor to an increased military presence and the use of fishing vessels and civilian aircraft for surreptitious means. The fact China also lays claim to Scarborough Shoal around 500 kilometers from the Chinese coast but far closer to the Philippines is as much as problem as the increasing militarization in Vietnam claiming sovereignty over the Truong Sa archipelago which at a lower level risks fracturing ASEAN cooperation.


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