China’s Greatest Threat is Internal

In the Financial Times, Richard Haass, President of the Council on Foreign Relations, writes about the primary challenges facing China, most of which originate from within:

Domestic pressures – the need to raise hundreds of millions more Chinese out of poverty, growing resentment over income and wealth inequality, the need to keep growth rates high – are also pushing China to find something to complement, if not replace, export-led growth. The result is that China is in the early days of a transition, one in which economic growth will increasingly have to stem from increased demand at home. Like all transitions, economic rebalancing is easier to call for than to bring about.

What makes it hard to accomplish is the inflation and a housing bubble that must be brought under control. Such pressures argue for policies that cool the economy – something that makes long-term economic sense but risks causing short-term political criticism. A further complication is that China must undertake this economic transition amid a political transition. The next generation of leaders is about a year from assuming office. The men taking over will face a daunting array of challenges in addition to those already mentioned: a deteriorating environment (when I was in Beijing recently it was possible to see only a few hundred metres and all but impossible to breathe), an ageing population and an increasingly brittle political context. The recent protests of the southern villages of Haimen and Wukan are but the tip of the iceberg: China experienced well over 100,000 political protests of some scale this past year, most over grievances from land confiscation to unemployment and the environment.