China is poised to become the EU’s most important commercial partner, while simultaneously being a serious challenger in trade and a competitor for resources. It is against the backdrop of this dichotomy that this report offers a number of suggestions to assist EU policymakers in developing a more coherent approach towards China.
China’s once-in-a-decade leadership succession has taken place. The 18th National Congress of the Chinese Communist Party (CCP), held in Beijing from 8-14 November 2012, has seen a new cohort of party leaders come to power until 2022. Xi Jinping and Li Keqiang have taken over from Hu Jintao and Wen Jiabao as president and premier of China respectively. Unlike his predecessor Jiang Zemin, Hu Jintao handed over both the Party General Secretary and Chairman of the Central Military Commission positions to Xi. This should make life easier for the new president, although Chinese politics is increasingly tending towards ‘collective leadership’ where power is shared within a group of senior leaders in the Politburo Standing Committee (PBSC). The new top brass will immediately face an array of domestic and foreign policy challenges. Due to China’s newly acquired centrality in global economic and strategic affairs, the way its new leaders address these challenges will have profound implications for the whole world.
The practice of governing through consensus within the PBSC was codified at the 16th Party Congress in 2002. In order to improve decision-making, this 18th Party Congress reduced PBSC membership from nine to seven. Besides Xi and Li, the new Standing Committee consists of: Zhang Dejiang (Vice Premier and Party Chief of Chongqing), Yu Zhengsheng (Party Chief of Shanghai), Liu Yunshan (Head of the CCP Propaganda Department), Wang Qishan (Vice Premier and Secretary of the Central Commission for Discipline Inspection), Zhang Gaoli (Party Chief of Tianjin). Building on what Mark Leonard of the European Council on Foreign Relations (ECFR) calls China 3.0 - with reference to the stages China has gone through since Mao Zedong’s communist revolution - these seven individuals may bring about a political shift significant enough to warrant their own label; ‘China 7.0’.
China 7.0 is rather conservative. The two main reformers - Wang Yang (Party Chief of Guangdong, the richest province where Deng’s ‘open door’ policy was initiated almost 35 years ago) and Li Yuanchao (the Head of the CCP Organisation Department) - did not make it into the PBSC. It remains to be seen whether this choice is in tune with a country that has changed remarkably since Hu Jintao became Secretary General ten years ago. David Pilling writing in The Financial Times recently reminded us that China’s economy has gone from a size of $1.5 trillion, the world’s sixth-largest, to $7.3 trillion, second only to the US. Since 2002, per capita income has more than tripled (from $1,135 to $5,445), transforming China from a low-income to a middle-income country.
Beijing’s economic performance, however, is slowing down. The country’s quarterly year-on-year growth rate has dropped from 12% at the start of 2010 to about 7.5% in the third quarter. By the end of 2012, Beijing may record its slowest full-year growth since 1999.
The challenge of reform
The new Chinese leadership needs to manage a soft landing by rebalancing the economy towards domestic consumption. Demand for its products in Europe and the US, its main export destinations, is likely to remain subdued in the coming years. Yet the reforms required to graduate to the next stage of development go straight to the heart of China’s political system.
Chinese leaders realise the need to change the model that has propelled the country forward since 1978 and to respond to a rapidly evolving society. As Jonathan Fenby wrote in The International Herald Tribune, ‘without a readiness to embrace change, including legal reform, addressing the multiple flaws in the so-called China model is virtually impossible.’ Echoing Fenby, in a full-page report in The Financial Times, Jamil Anderlini argues that the new leaders face ‘a tide of social and economic change that threatens the rigid state system in which they thrived.’
China’s ascent could indeed be derailed by a combination of slower growth and rising social tensions. If the economy does not expand, there is a risk that social tensions within society will escalate and possibly lead to political instability. Averting this scenario depends to a large extent on the ability of the Chinese leadership to reform itself. As a genuine opening up of the political decision-making process to broader sections of society may lead to the Communist Party losing its own monopoly on power, efforts towards political reform are likely to be resisted by the more conservative elements within the regime. The example of the Soviet Union still haunts Chinese leaders. Francois Godement recently remarked that a ‘struggle’ is going on within the CCP between two main camps. On one side, there are those who favour market forces and political liberalisation. On the other, there are those who advocate state-led capitalism and tight control over society.
In his opening speech to the Party Congress, President Hu devoted two long sections to ‘democracy within the party’ as well as to fairer and more transparent ways for choosing leaders. In a much-debated and controversial article, Daniel Bell and Eric Li argued that ‘the Chinese regime has developed the right formula for choosing political rulers that is consistent with China’s culture and history and suitable to modern circumstances. It should be improved on the basis of this formula, not western-style democracy.’ A position echoed by Zhang Weiwei in an op-ed on ‘meritocracy versus democracy’ where he states that the CCP ‘may arguably be one of the world’s most meritocratic institutions.’ This stance has been rebuffed by a number of commentators, starting with Mark Elliott who maintains that elites in Chinese history have relied on means other than ‘merit’ to succeed politically. The question of political reform is no mere academic debate. If the system does not reform itself, there are serious risks of social and political instability which could also translate into a more nationalistic and aggressive foreign policy. As Michael Yahuda pointed out, the crises in the East and South China Seas have provided a convenient excuse for Chinese leaders to fan the flames of nationalist elements, and thereby diverting attention from domestic political troubles and changes.
China, the US, and us
The top foreign policy issue for Beijing is its relationship with Washington. It is no coincidence that the 18th Party Congress was moved to mid-November 2012, when the result of the US Presidential election would have already been known. The US-China relationship is characterised today by ‘strategic distrust’. This argument is made in a report published by the Brookings Institution in March 2012 - co-authored by Wang Jisi (Dean of the School of International Studies at Peking University and possibly China’s foremost commentator on international affairs) and Kenneth G. Lieberthal (Director of the John L. Thornton China Center at Brookings and one of America’s most prominent China watchers) - which lays out both the underlying concerns each leadership harbours about the other side and the reasons for those concerns.
Mutual distrust has been steadily increasing since 2010. The remarks by Hu Jintao at the 18th Party Congress about the need for China to continue building up its defence capabilities and become a ‘maritime power’ have not helped to defuse tensions. Similarly, Obama’s first trip abroad since being re-elected to rally support for the US ‘pivot’ in South East Asia has contributed further to the growing perception of a US-China tussle for regional leadership. Minxin Pei noted that if this is not stopped quickly, it ‘could lead to a fierce rivalry harmful to both countries’, adding also that the top foreign policy priority for both Obama and Xi is to now ‘reset the tenor of Sino-American relations.’ Yan Xuetong responded that the pursuit of mutual trust is not the answer. According to the Chinese scholar, China and America should instead strive for cooperation on shared interests and open dialogue on conflicting interests.
Europe does not feature in this debate, stuck as it is in the most severe economic crisis for decades. Yet, the EU is not completely out of the picture and the US appears eager to cooperate with the Union in the Asia Pacific. Furthermore, Chinese leaders continue to view the EU as a possible counterweight to American power. Between Obama 2.0 and China 7.0, a diplomatic role could still be found for the EU-27.
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