Daily Archives: December 27, 2011

History will look back on 2012 as the year when China anointed its “fifth generation” of leaders and shifted to a slower growth trajectory – against a backdrop of increasing social unrest, widening income disparities and rising external tensions. Beijing will be fixated on preserving stability, but reduced economic flexibility could stop it doing so.

In truth, slower growth of around 8 per cent could be better for China and the world: more sustainable and equitable outcomes would ease popular concerns and higher consumption would improve global trade tensions. But many foresee an economic collapse, arguing that a property bubble could combine with a prolonged eurozone crisis to render vast swathes of industry unprofitable. Others believe that Beijing has ample resources to avoid a crisis, but may not have all the necessary economic tools at its disposal.

Domestically, mounting inequalities have nurtured a sense of injustice, 200m migrant workers remain second class citizens and corruption is worsening – but China’s economic success has fostered unwarranted self-confidence. Rather than tackling these problems, the system has moved aggressively to contain social discontent.

Beijing’s belligerent responses to overlapping maritime claims have also heightened worries in a region already wary of its economic clout. To China’s dismay, this has driven its neighbours to support a stronger US presence in Asia and has complicated regional trade integration.

The potential for conflict will force China and the US to redefine their roles in a shifting environment that neither is comfortable with. Asian countries are in a position to delineate the boundaries of influence for these two powers but, given their varied interests, alliances will shift depending on individual concerns.

China must walk a narrow line at a time when its outgoing leadership is reluctant to take any far-sighted decisions.
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