By Chris Buckley
BEIJING, Aug 13 (Reuters) – China’s ruling Communist Party
is grappling with a leadership transition while also trying to
deal with destabilising scandals, economic uncertainties and
outbursts of unrest, but for now economic growth and firm
controls are likely to avert serious ructions.
Two high-profile cases — those of former rising political
star Bo Xilai, and blind activist Chen Guangcheng — have been
deeply embarrassing for Beijing, and refocused world attention
on human rights, the rule of law, and corruption in elevated
political circles.
RATINGS (Unchanged unless stated):
S&P;: AA-
MOODY’S: Aa3
FITCH: A+
SUCCESSION POLITICS
Chinese President Hu Jintao and Premier Wen Jiabao are due
to give up their main Communist Party posts in late 2012 and
their state posts in early 2013, making way for a new leadership
generation likely to be led by current the Vice President Xi
Jinping, who is virtually certain to replace Hu.
Most other members of the nine-member Standing Committee –
the Party’s decision-making core – are likely to retire in late
2012 as well.
The politics of determining who will fill those vacancies is
increasingly preoccupying decision-makers, slowing policymaking
and deterring the government from taking significant decisions.
Chinese elite politics has been largely bound by the norms
of conformity and unity around a leader, and competition among
these contenders is unlikely to break out into open feuding or
trigger major policy shifts.
Those norms have been shaken by the ousting of Bo Xilai, who
had been a possible contender for a place in the Standing
Committee until his dismissal from the party secretaryship of
Chongqing in southwest China in March.
Bo’s downfall, which has unleashed division and uncertainty
as the leadership transition approaches, came after his wife
became a suspect in the murder of British businessman Neil
Heywood.
The case has brought great international attention on
wealth, corruption and wrongdoing among China’s political elite.
Bo’s wife Gu Kalai stood trial for murder in August, and she is
expected to be found guilty but may escape the death penalty.
Bo could also face criminal punishment later, but first the
party leadership must decide on how to deal with him.
Still, the growing public prominence of Vice President Xi
and Vice Premier Li Keqiang indicates they are increasingly sure
of succeeding President Hu and Premier Wen respectively, and
preparations for the Party congress that will install the new
generation of leaders later this year have continued.
Xi visited the White House in February, enhancing his
credentials for the top job.
One key issue will be whether Hu will remain chairman of the
Central Military Commission, which controls the People’s
Liberation Army. Staying on would give him more sway over his
successors.
What to watch:
– Which emerging leaders make substantive policy statements
and announcements. That can be a signal of their prospects and
likely areas of authority.
– Political and ideological rivalry among aspiring leaders,
and signs the Bo Xilai scandal is not an isolated case, as the
Communist Party claims. Rivalry is likely to remain constrained,
but serious economic problems, political scandals or external
shocks could heat up the competition.
SOCIAL UNREST – ACTIVISTS, ETHNIC UNREST, ECONOMY
China’s economic growth rate slowed for a sixth successive
quarter in the second three months of 2012 to 7.6 percent, its
slackest pace in more than three years, reinforcing the need for
more policy vigilance even as signs emerge that action taken so
far is beginning to stabilise the economy.
The central bank surprised markets in June with a cut to
benchmark borrowing rates, its first since late 2008, and in
early August it said it would intensify its monetary policy
fine-tuning in the second half of the year and improve credit
policy to help the real economy.
China’s consumer inflation dipped to a two-year low of 3
percent in May while economic activity remained weak,
reinforcing expectations that further policy easing could be in
the pipeline to head off a sharper slowdown in the world’s
second-largest economy. A Reuters poll in July showed economists
expect the central bank to cut both lending and deposit interest
rates by 25 basis points in the third quarter.
The case of blind legal activist Chen Guangcheng has
refocused world attention on China’s human right record, and its
restrictions on dissent.
Chen’s audacious escape from house arrest in rural eastern
China in April and subsequent six-day stay in the U.S. embassy
caused huge embarrassment for China, and led to a serious
diplomatic rift while U.S. Secretary of State Hillary Clinton
was visiting Beijing.
Chen was allowed to leave China for the U.S. in May, a move
that signalled the end of the diplomatic crisis, but his nephew
faces possible criminal charges stemming from a confrontation
with guards after Chen’s escape.
The Chinese government fears social unrest could escalate
into broader protests and threaten its authority.
The most widespread sources of rancour are land
confiscations and home demolitions for development, price rises
and corruption.
Most outbursts are small and the chances of mass unrest
challenging Party rule soon are scant. But a protest in Wukan
Village in southern China in late 2011 showed that even these
local outbursts can attract widespread attention and test the
ability of officials to defuse discontent.
The far western regions of Tibet and Xinjiang also remain
tense. In Tibet, there has been a string of self-immolations and
protests challenging Chinese religious controls.
The Tibetan unrest is most unlikely to trigger sympathy
protests in Han Chinese areas of the country, but government
forces could face persistent defiance that spills over into
international tensions.
Such pressures encourage a mixture of tough security and
aversion to policy gambles.
What to watch:
– Protests and strikes that, while local, put the government
on edge.
– Flare-ups of ethnic discontent. Chinese government efforts
to contain sources of protest, which could also affect
companies, especially Internet and telecoms ones.
– Economic data, and how the central bank and investors
respond to it.
INTERNATIONAL RELATIONS
The disputed South China Sea, where China, the Philippines,
Taiwan, Brunei, Vietnam and Malaysia all have competing claims,
has become Asia’s worst potential military flashpoint. China’s
claims encompass almost all its resource-rich waters, and it is
locking horns, even if at the rhetorical rather than military
level, with the United States more frequently over the area.
In early August, the Communist Party’s top newspaper telling
Washington to “shut up”, soon after the Foreign Ministry
condemned a U.S. State Department statement that said Washington
was closely monitoring action in the waters.
China and the Philippines only recently stepped back from a
months-long standoff at the Scarborough Shoal, a reef near the
Philippines in waters they both say are theirs, and at the start
of July China’s top newspaper accused the Philippines of
plotting to deliberately stir up trouble, and warned that
Beijing’s patience should not be mistaken for weakness.
The Philippines may ask the United States to deploy spy
planes over the area to help monitor its waters, President
Benigno Aquino told Reuters, a move almost certain to worsen
relations between Beijing and Manila.
At the Association of Southeast Asian Nations’ (ASEAN)
meeting in July, rifts over the South China Sea prevented the
group’s foreign ministers from issuing a communique for the
first time in its history.
Meanwhile as the Syrian crisis drags on, China and Russia
have vetoed two Security Council resolutions criticizing the
Syrian government and threatening it with possible U.N.
sanctions in the wake of deadly attacks on opposition groups by
troops loyal to President Bashar al-Assad.
Russia and China have opposed international interference in
Syria and argued that a domestic solution to the bloodshed there
is possible, but Beijing has repeatedly stressed that it wants
to work with the Arab League to find a solution.
The tensions with Arab states are most unlikely to hurt
China’s access to Middle Eastern oil, but Beijing could find its
diplomatic credit in the region weakened.
What to watch:
– Rhetoric and military manoeuvres in and around the South
China Sea. While none of the countries involved wants a war –
and none of China’s Asian rivals could hope to challenge it
militarily – there remains the risk of errors leading to
confrontation, and the overall buildup of arms in the region.
(Editing by Daniel Magnowski)
