Changes and Challenges for China in 2013

In the wake of a leadership transition and at the end of an erratic year – full of scandalous political plummets, diplomacy-testing activist escapes and enflamed nationalism, one can only wonder what will come in 2013. Time will tell, but informed analysts can offer us clues as we wait. As 2012 winds to an end, fellows from the Council on Foreign Relations predict the changes and challenges to come in 2013:

This October, China’s Eighteenth National Congress ushered in a new generation of leaders that will set the agenda for the second-largest economy in the world, provoking myriad questions about what we’ll see out of the country in the coming year. CFR’s Adam Segal predicts continued international concern for China’s cyber policy, while CFR’s Elizabeth C. Economy weighs its challenges of keeping “foreign policy front and center” against a heavy list of domestic concerns. Claremont McKenna’s Minxin Pei adds that China will be forced to respond to calls for greater political openness, facing a delicate balancing act. CFR’s Yanzhong Huang points out that despite China’s highly publicized health-care achievements, reform hasn’t fundamentally solved the problem of access and affordability.

Since took the reins as CCP general secretary, domestic policy has been front and center: we have seen a symbolic trip to the south emphasize the leader’s commitment to , and have heard the powerful princeling identify the eradication of party corruption as a major policy goal. Also in question are the prospects for political reform – potentially divisive as the influence of previous party leadership lingers. A reform-minded new leader and an anti-corruption campaign both made Sinocism curator Bill Bishop’s list of “8 Trends to Keep an Eye On” in 2013, published at the NY Times’ Dealbook blog:

NEW LEADER Xi Jinping has moved quickly in his first three weeks to project an image of change. The government faces a growing expectations gap with its citizens and needs to rebuild public confidence. Mr. Xi is talking a lot about the Chinese dream and the “great renewal of the Chinese nation” — nationalist concepts with significant appeal. Mr. Xi’s choice of Shenzhen for his first domestic inspection trip is a symbolic tribute to Deng Xiaoping’s 1992 southern tour that restarted reforms after 1989. Mr. Xi’s visit is most likely a signal that he is serious about pushing forward with changes. Expect renewed energy around overhauls, primarily economic and administrative but possibly some political ones.

CRACKDOWN ON CORRUPTION The new leadership has begun a public crackdown on corruption. One relatively senior official and several minor officials have already fallen. Internet exposés brought down the minor officials, but there are reports that the Communist Party’s central disciplinary inspection commission has started new investigations into money laundering through Macau. Expect this antigraft campaign to ensnare more senior officials and to be the most effective in recent memory, yet ultimately stop short of addressing the systemic issues that have allowed corruption to flourish.

There are those, including CFR’s Elizabeth C. Economy and Bill Bishop above, who stress the importance of China’s foreign policy in the year to comeCNBC talked to Daniel Franklin, editor of The Economist’s “The World in 2013“:

The relationship between China’s new leader Xi Jinping and President Barack Obama “is absolutely the crucial one now for global politics,” Franklin tells The Daily Ticker.

Franklin says both men need to keep U.S.-China trade flowing. China is the second largest trading partner of the U.S. Last year $503 billion worth of goods were exchanged between the two countries. 80% of those items were U.S. imports from China.

Franklin says both countries also need to work on resolving disputes between China and other countries over ownership of islands in the South China Sea. Many of those countries, including Japan, South Korea, Taiwan and the Philippines, are allies of the U.S.

“This is something that has to be handled, adjusted to, and it will be awkward, no doubt about it,” says Franklin.

China’s English-language press also offers us a forecast into the Year of the Water Snake. Xinhua describes rural development efforts to be expected in 2013, and the Global Times cites World Bank data predicting that GDP growth, which fell in 2012, will rebound:

The World Bank raised its 2013 forecast for China Wednesday, citing the government’s fiscal stimulus plans and faster approval of large investment projects.

China’s growth is projected to recover in 2013 to 8.4 percent due to the combination of monetary easing, local government fiscal stimulus, accelerated approval of investment projects and an upswing in the business cycle, the World Bank said in its East Asia and Pacific Economic Update published Wednesday.

The bank also forecast that growth will reach 7.9 percent for 2012, significantly down from 9.3 percent in 2011.

For more on the economic front, Bloomberg reports that China plans to increase its budget deficit by 50 percent in 2013, which could help to boost urbanization and consumer demand.

Next year may also bring further changes to China’s role in the global economy. While foreign firms invested 3.6 percent less in China compared to last year, Chinese firms invested 25 percent more abroad. Chinese FDI has long landed primarily in the developing world, but firms are also beginning to invest seriously in developed countries. Forbes predicts that this trend will continue, and identifies 13 Chinese companies that will “go global” in 2013:

Chinese foreign direct investment has long been characterized as focusing on securing raw materials in emerging markets like Africa and Latin America. But as the list of the top 13 Chinese companies going global below demonstrates, this is no longer the case. Chinese investment continues in strategic natural resources like oil and gas; however, companies in industries ranging from consumer electronics, entertainment, athletic apparel and even luxury boating are all pushing beyond the borders of the Middle Kingdom. Through expansion overseas, they aim to gain access to new distribution channels, international managers, brand recognition and technological expertise in global markets.

While some of the names appearing on the top 13 for 2013 are well on their way to becoming househould names, a few of the others may come as a surprise…

Many of Forbes’ 13 soon-to-be global firms were telecoms, IT, e-commerce and computer companies. Contrasting Forbes’ economic optimism, Tech In Asia’s Charlie Custer anticipates a rough year to come for China’s tech industry:

Amidst all the 2012 in review madness, I thought it might be fun to turn our eyes to the future for a moment and make some about what’s coming in 2013. Well, “fun” is a relative term. Call me a pessimist, but I think 2013 is going to be the worst year ever for China’s tech industry. Why?[…]

Also head over to Asia Society’s website to see Chinese historian Jeffrey Wasserstrom’s reading list for 2013.

As we wait to see what 2013 will bring, look back at the year passed with CDT’s China 2012 News Map.