Damien Ma - Damien Ma is a China analyst at Eurasia Group. He writes on Chinese energy policies and climate change, politics, innovation, U.S.-China relations, social policies, and Internet policies, among other topics. He has written for Slate, The New Republic, and Forbes.
China had quite a year in 2010; in fact, quite the decade. I think it's safe to say that China ended the first decade of the 21st century in a very different place than parts of the developed world. It dusted off the effects of the "Great Recession" and emerged the world's #2 economy, surpassing Japan. Meanwhile, Europe seems to be gripped by uncertainty and waywardness, dealing a setback to one of the most momentous regional integration stories of the last half century.
2010 opened with the brouhaha over Google's threat to pull out of China, shortly followed by Beijing's muscular posture toward US arms sales to Taiwan, with threats to sanction US companies. Bickering over currency, an assertive Beijing exerting claims in the South China Sea, and finally a move on currency before the G20 in June punctuated the spring and summer. With a little reprieve, Beijing then careened into conflict with Japan over a fishing boat incident, which had the unintended effect of catapulting obscure metals called rare earths to dominate headlines. Of course, the crescendo came during midterm elections when a preponderance of anti-China political ads dotted websites and television screens, as well as a currency bill that wound its way through the House of Representatives. And of course, few could forget Beijing's ill-advised and stubborn protestation against the Nobel Peace Prize (if Liu Xiaobo was virtually unknown in China before this episode, he sure is well-known now). Yet the year's denouement was not accompanied by the rancor that defined Copenhagen last year, but a gentility that saw a China willing to compromise, helping to salvage the climate change process.
Whew, that's a lot, and I may have omitted items. So what's in store for 2011?
Other than President Hu Jintao's January state visit to Washington--on which I will write when the time arrives--one of the most important developments will be the final contents of the 12th Five-Year Plan and how China begins to execute it. The plan will be formally ratified by the Chinese legislature in March 2011, when the numerous moving pieces that compose the broad plan will be put into action. In a previous post, I've raised some questions to which the Chinese will have to address in the next few years in their plan, so I won't regurgitate them here. Instead, I want to draw attention to a recent op-ed by Yu Yongding, an Oxford-educated former adviser to the Chinese central bank, who offers a sober assessment of what's at stake for China over the next several years:
But even as economists and strategists busily extrapolate its future growth path to predict when it will catch up to the United States, the mood in China became somber and subdued in 2010. Indeed, Premier Wen Jiabao sees China's growth as "unstable, unbalanced, uncoordinated and ultimately unsustainable".
I think Yu quite accurately captures the mood that percolates beneath the current optimism over a Chinese economic juggernaut, both internally and externally. Not to say that China will not see solid grow--most economists are still projecting enviable growth rates of 8-9 percent--but the sustainability of how it is growing is under serious scrutiny. People like Yu are increasingly warning against complacency that can lead to a middle-income trap or Japanese-style lost decade. Yu goes on to say:
So arrives the 12th FYP, which in theory aims to tackle some of the structural challenges that will head off longer-term pain. But the outstanding question remains whether China's leaders will pursue the right policies with the kind of urgency necessary. Major economic adjustments are usually never pleasant, and most leaders would prefer to minimize the pain on the largest swath of the population possible during that process. The Chinese are no different in this regard, but how much heavy-lifting can they tolerate? Yu and a similarly reform-minded lot are advocating temerity over timidity, likely in a bid to influence the direction of debate as there are forces inevitably arrayed against them. Plenty of interests in China eschew these changes that will involve taking away some of their wealth, likely prompting a vigorous defense of the status quo. There remains a window of opportunity to push forcefully for what Yu calls a "different road," as drafters of the plan continue to revise and churn until next year. Either way, an interest-based political and policy battle is likely under way that will shape how China grows over the next decade. We'll see how the story develops.With that, I'll be back in 2011. Happy New Year (æ–°???)!
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