Previous forecasts of China’s replacement of the US as the new economic superpower in the early 21st century seem to be misplaced. As the annual sessions of the Chinese National People’s Congress and the People’s Political Consultative Conference concluded on Wednesday, there was much concern about the country’s financial prospects for this year.
Even though China is now much stronger and wealthier than it was at the beginning of its “open-door” reform in the 1980s, it still faces three major obstacles that restrain the ability of Chinese President Xi Jinping (習近平) and Premier Li Keqiang (李克強) to maneuver in the midst of a massive economic slowdown.
The first problem has to do with a discrepancy between the Chinese Communist Party’s and ordinary people’s understanding of the nation’s resilient power. Although the public is confident of the state’s direction for boosting economic innovations, the rulers deeply worry about many sources of uncontrollable discontent and grievances.
On the financial front, the gravest danger is the vulnerability of the banking industry.
The Communist government has been reluctant to liberalize the market economy and strengthen private entrepreneurs. Princelings and party officials, who can access state resources, have effectively appropriated state-run commercial banks to inflate growth and development figures and hide badly performing loans.
Therefore, the most pressing issue facing Xi and Li is how to simultaneously restructure the top-down command economy and open the financial sector.
In light of an economic downturn, the state-led model of industrial capitalism has lost its appeal. Private enterprises and labor-intensive factories in the Pearl River Delta have gone bankrupt, because they had no political connections to obtain loans to deal with cash flow problems.
The era of China’s economic miracle appears to be over. Overall industrial productivity is in sharp decline, and popular grievances are rising. To ensure socioeconomic stability, Beijing has urged consumers and local authorities to purchase more homemade products and services.
While increasing expenditure on infrastructure construction and handing out loans to state-owned enterprises, Beijing has yet to transfer wealth from the state to citizens in a bid to boost domestic consumption.
The second challenge concerns the lack of liberalization in the social and political spheres.
The state has renewed attacks on human rights lawyers, community activists, independent intellectuals and critical netizens. Undoubtedly, the top leaders are determined to contain the spillover effects of a dangerous economic setback.
So far, most of the community conflicts remain localized and the central government has prevented this discontent from escalating into a nationwide uprising like that in the spring of 1989 and Hong Kong’s “Umbrella movement” in late 2014.
Nevertheless, faced with increasing popular frustration, the leaders need to look politically strong and fearsome. The recent diplomatic row over South Korea’s deployment of the US’ Terminal High Altitude Area Defense system and the sovereignty disputes in the South China Sea have discouraged any reform-minded officials from proposing, experimenting and launching new policy agendas.
The third problem is related to the end of China’s long-standing diplomatic harmony with neighboring countries. To a rising power, the formation of a new geostrategic vision is as significant as its precise implementation.