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The People's Republic of uncertainty

Chinese President Xi Jinping applauds after unveiling a sculpture during the opening ceremony of the Asian Infrastructure Investment Bank in Beijing on Jan. 16.

The world's eyes are on the American elections, with its colorful cast of characters and dynamics that too often resemble a reality television show. But financial market turbulence and geopolitical tremors remind us that more fundamental questions surround the future of governance and reform in China.

     The U.S., with its strong institutions, vibrant civil society, and separation of powers, can weather a circus-like presidential primary campaign. China's authoritarian brittleness and developmental challenges mean it has less room to maneuver, risking a perfect storm that could produce significant internal and external upheaval, if not slow drift into the middle-income trap.

     There is a tension inherent to the Chinese leadership's ambitious agenda at home and abroad. President Xi Jinping's administration looks like it is trying to do too much -- turning the South China Sea into a Chinese lake and launching an ambitious new grand strategy to connect the eastern and western ends of Eurasia while simultaneously persecuting political opponents and intervening ham-fistedly in Chinese stock markets. At the same time, his government is also doing too little -- insufficiently reassuring China's neighbors and other great powers that the country's rise will be peaceful, failing to contain the explosive growth of debt, squeezing ever less growth out of ever more capital investment, and stalling on liberalizing reforms that could set China's economy on a more sustainable trajectory.

     China experts -- foreign and domestic -- highlighted these contradictions at a recent meeting of the German Marshall Fund's Stockholm China Forum. Many senior Chinese scholars and foreign policy practitioners show confidence in their country's destiny as a 21st century superpower, one that ranks above Europe and other great powers in geopolitical heft and either is or will be a peer of the U.S. Chinese elites assume their country will be predominant in Asia and will progressively expand China's sphere of influence across its periphery, from Central Asia to the Indian Ocean and the Western Pacific.

     They are also thinking creatively about how to wield Chinese hard and soft power beyond Asia -- for instance, debating openly whether China could intervene militarily in Syria against the Islamic State group and presenting expansive plans to unite a fragmented Eurasia under Chinese leadership through the ambitious "One Belt, One Road" initiative, enhancing China's presence in far-flung regions from the Persian Gulf and the Horn of Africa to the eastern Mediterranean.

     China's leadership is also pursuing grandiose plans to construct a new international economic architecture through Sino-centric institutions like the Asian Infrastructure Investment Bank, the New Development (BRICS) Bank, and the Regional Comprehensive Economic Partnership -- all of which exclude the world's largest economy, the U.S.

Risk factors

Yet while China is positioning itself in the long run to be the dominant actor in the Eurasian heartland and to reorient the Asian and global economies around itself, the near term looks far less certain, presenting a confluence of multiple risks that could knock the country's long-range trajectory off course.

     China's startling growth slowdown -- some economists believe the country is hardly growing at all -- along with frantic government efforts to keep priming the economic pump, has led to an accumulation of debt that now approaches 300% of gross domestic product. The Shanghai stock exchange has just lost more than 40% of its value, spurring a global selloff in financial markets. The Chinese government's ineffective interventions to support collapsing share prices on the country's stock exchanges, and inconsistent management of the country's currency regime, have raised hard questions about the authorities' competence and understanding of market forces. So much for the "Beijing Consensus" -- the belief in the wake of the 2008 U.S. financial crisis that China had pioneered a more effective model of economic management through state capitalism.

     Plummeting global commodity prices are a direct result of contracting Chinese demand for everything from oil to iron ore to soybeans. Rising wages and yuan appreciation have diminished Chinese competitiveness in the global economy; China's workforce as a share of the population is declining while the country is rapidly aging; and the foreign companies that helped make China the world's factory now complain about a hostile business environment stemming from domestic-content and other mercantilist restrictions that favor Chinese firms at the expense of their Western and Asian competitors.

     Politically, China is in some ways more repressive than it was a decade ago, despite the country's broad-based economic modernization. Xi's anti-corruption campaign has been effective in both deterring official high-living and neutralizing the president's political competitors. Chinese agents reportedly have been involved in the extraordinary rendition from overseas of Chinese, European, and American citizens who dared to challenge either the Communist Party's official narrative or its monopoly on power by engaging with civil-society groups. Even as the party-state has tightened its grip, however, Xi's moves have discomfited elite factions centered on previous Chinese leaders, including those who preferred communal rule by the Politburo's Standing Committee to centralized rule under one man.

     As the China scholar Andrew Small observes: Xi Jinping is seen to be struggling at the moment. Despite being the 'strongest leader since Mao,' his track record is thin and there is the sense that he has over-extended himself by taking on so many different issues and enemies at once. The bureaucracy is variously in shock, struggling to catch up, passively resisting, or under investigation in the anti-corruption campaign. He has squandered decades of reputation-building for China on economic policy matters in barely 18 months and seems oddly indifferent to the state of the Chinese economy while he concentrates on his two higher-priority reform agendas -- the Party and the People's Liberation Army.

     As another expert puts it, Xi has scored one notable success: "re-introducing fear as an element of rule for the first time since the Cultural Revolution."

     Meanwhile, in foreign affairs, the outlook for China is mixed at best. By overwhelming margins, Taiwanese voters have just elected a president who tacitly supports Taiwan's independence rather than reunification with the mainland; 60% of the island's public say they are "Taiwanese," as against fewer than 4% who see themselves primarily as "Chinese." Hong Kong voters are growing ever more alarmed by Beijing's evident failure to honor its "one country, two systems" treaty pledges of respect for the city's autonomy and for its people's legal rights.

Military concerns

The International Court of Arbitration in the Hague recently ruled in favor of the Philippines' challenge to Beijing's unilateral claims in the South China Sea, while Manila has invited American forces back under basing arrangements that have been precluded since the U.S. military withdrawal from Subic Bay in 1991. Vietnam, Malaysia, India, and other non-traditional U.S. partners have tightened security ties with the U.S. in light of Chinese assertiveness. Prime Minister Shinzo Abe has successfully expanded the scope of Japan's domestic law to enhance the country's ability to conduct military operations independently and with allies, as well as boosting strategic ties with the U.S., India, Australia, and Southeast Asia.

     Even closer to home, China has been unable to prevent Kim Jong-Un from conducting North Korea's fourth nuclear weapons test; one Chinese expert says Beijing is "disgusted" with its erstwhile ally, whose antics are likely to precipitate a more forward-deployed U.S. military presence in northeast Asia -- including missile defense cooperation with South Korea, which China opposes.

     Since assuming leadership of China in 2013, Xi has met Russian President Vladimir Putin more than any other leader. But Beijing's quasi-alliance with Moscow looks as much like a liability as an asset: Russia is isolated from the West since its invasion of Ukraine, its president is credibly accused of ordering the assassination of political enemies at home and abroad, its economy is in free-fall, and its military adventurism in Syria in support of the discredited regime of Bashar al-Assad has poisoned relations with Turkey and Sunni Arab states while risking a backlash from Russia's marginalized Muslim minority population.

     Meanwhile, Xi has ratcheted up strategic competition with the U.S. in the South and East China seas and in cyberspace, prompting competition among America's aspiring presidential candidates over who, as president, would have the toughest China policy.

     In short, there are few leaders attempting simultaneously to manage a wider array of risks at home and abroad than Xi. The world has a vital stake in China's success and does not wish the country to suffer economic shock, violent political upheaval, or foreign military conflict. Ironically, the surest way to avoid these outcomes would be for Xi to liberalize economic and political control and reign in Chinese assertiveness abroad. The Chinese president's instincts, however, seem to point in the opposite direction.

Daniel Twining is senior fellow for Asia at the German Marshall Fund and a former member of the U.S. Secretary of State's policy planning staff (2007-09).

     

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