Xi Jinping, who succeeds Hu Jintao as General Secretary of the Chinese Communist Party at the just-ended 18th Party Congress, is a man in a big hurry. The avuncular-looking princeling (a reference to the offspring of party elders) – who will become state president next March – has been thrust into the international limelight without thorough preparations for what many consider would be the biggest challenges facing a nation of nearly 1.4 billion people.

 

Domestically, Xi must think of ways to defuse growing contradictions in society, which are manifested by the estimated 150,000 cases of riots and disturbances each year. While China’s GDP is set to meet its growth target of 7.5 percent this year, Xi must think of ways of restructuring the economy.

 

So far, Beijing has relied on traditional government injection of funds – mostly in infrastructure and housing projects – to ensure economic expansion and to generate jobs. On the foreign policy front, Xi must face the possible exacerbation of the “anti-China containment policy” that is apparently spearheaded by the US.

 

Even countries with close economic ties with China are worried by the so-called China threat theory: that this fire-breathing dragon may upset the status quo of international order.

 

While Xi lacks a track record for speedy and proactive solutions for mind-boggling problems, there are signs that his ability to learn on the job may be higher than expected. Party veterans close to Xi point to his mysterious absence from the political stage from September 1 to 15 this year. While all sorts of rumours about the 59-year-old “crown prince’s” health were floated, it turned out that Xi was staying away to protest against President Hu’s staying on as Central Military Commission chief after the 18th Congress.

 

In other words, Xi wants to establish his authority quickly. He doesn’t want a power behind the throne to breathe down his neck.

 

The Xi administration is expected to use a carrot-and-stick approach to try to maintain social harmony and prolong the party’s mandate of heaven.

 

While political reform is out of the question, there will be improvements in social-welfare benefits. It is possible that Beijing will shortly abrogate the rigid hukou or household-registration system that prevents peasants from getting permanent residence status in the cities. Public spending on health care, education and old-age benefits is set to grow so as to appease the under-classes.

 

For example, the minimum-wage for workers is expected to increase by at least 7 percent to 10 percent every year. 36 million subsidized flats are expected to be constructed in the 2011-2015 period. Spending on education will for the first time be more than 4 percent of GDP. Health insurance, which until the early 2000s was restricted to the cities, will cover more than 95 percent of rural villages before 2015. These dispensations will also have the result of encouraging ordinary Chinese to spend more. Boosting domestic consumption is a crucial locomotive for future economic growth given that China’s exports to areas such as the US and the EU may remain in the doldrums due to dicey conditions in these mature markets.

 

Xi and his colleagues are also keen to improve “rule by law” or “administration according to the law.”

 

Two major targets have been set.

 

One is cracking down harder on corruption. The impending trial of Bo Xilai, the former Politburo member and Chongqing party secretary who is charged with large-scale corruption, may set the tone for the rest of the Xi Jinping era. Bo is expected to get a jail term of around 20 years. This will be a record for a princeling and former Politburo member.

 

The other target will be harsh punishment for perpetrators of “land grab,” a reference to corrupt officials acting in collusion with greedy property developers to deprive farmers as well as urban residents of their land or apartments. Land grab accounts for at least 60 percent of the protests and disturbances that break out every year. Other legal reforms may include the annulment of the draconian reform-through-labor penal system, which has been criticized by legal scholars in and out of China as unconstitutional and against universal principles of jurisprudence.

 

On the economic front, a seminal reform that Xi and his advisers are working on involves rendering yangqi – a reference to state-owned enterprise groupings – more efficient. About 120 yangqi enjoy monopolistic powers in fields ranging from oil and gas to banking and shipbuilding. Xi, however, faces tremendous obstacles because the 120-odd yangqi are either controlled by powerful bureaucracies or by the offspring of party elders.

 

The state media has indicated that for starters, SOEs in the transport (particularly railways), postal service and salt sectors will be streamlined and in some cases privatized.
However, it is unlikely that private – or foreign – firms will be allowed into lucrative sectors such as petrochemicals and telecommunications.

 

The Xi administration may do more in financial reform, particularly the internationalization of the Chinese currency, the yuan or renminbi. The State Council or central government is mapping out ambitious plans to turn Shanghai, Tianjin and other major commercial cities into global financial hubs. The prerequisite for this is of course the convertibility of the yuan and the freedom of funds to move in and out of the country.

 

At this stage, offshore RMB centers have been set up in Hong Kong, London and Singapore. Some 12.3 percent of China’s trade – mainly with neighboring countries including Russia, Japan, and ASEAN members – is now being conducted in RMB and not U.S. dollars. Allowing foreign financial companies more access to the China market will also go a long way toward defusing widespread criticisms leveled by many Western governments against Chinese protectionism in the services sector.

 

Regarding foreign policy, Xi’s major challenge is to reach a better understanding with the US on how to boost mutual benefits while avoiding head-on confrontation.

 

The Xi administration is expected to use a version of what Deng Xiaoping called “double-fisted strategy.” On the one hand, Beijing will play the economic card so as to persuade countries in the Asia-Pacific Region not to join Washington’s anti-China containment policy. Countries in this region ranging from big ones like Japan, South Korea, Indonesia and Australia to small ones like Cambodia, Laos and Thailand have become dependent on trade – and in many cases, huge trade surpluses – with China.

 

Xi’s challenge is to persuade these countries to accept China’s pre-eminent geopolitical position in return for the continuation of substantial trade and other economic benefits that are based on a strategic partnership with the PRC.

 

While being tough with the US on the front of the “arms race of the century,” the Xi administration may try to avoid head-on confrontation with the US so as to buy time to resolve its domestic problems.

 

Beijing is expected to do more to comply with expectations of American politicians in areas where core Chinese vested interests may not be damaged. North Korea and Iran are two key fronts. While Beijing hopes to maintain its unrivalled influence on Pyongyang, it may also do more in persuading the Kim dynasty to refrain from roguish behavior. This will not only buy Beijing good will in the US – as well as South Korea and Japan – but also raise China’s reputation as a responsible stakeholder on the global stage.

 

The issue of Iran may be a bigger challenge for the Xi administration. Beijing has benefited from its unique relationship with Tehran to secure reliable supplies of oil and gas. Its leverage with the Islam fundamentalist regime, however, is doubtful given the religiously inspired radicalism of Tehran. However, to the extent that an Iran with weapons of mass destruction may destabilize world peace – and affect even Chinese interests in the Middle East – Beijing may think that it is worthwhile to redouble efforts to persuade Tehran to step back from a policy of nuclear brinksmanship.

 

How to avoid aggravating economic and trade tension with the US will also be a big challenge for the Xi team. Given that the renminbi has already appreciated by more than 20 percent since 2005, there is only so much that the Chinese government can do without blunting Chinese exports.

 

The only solution may be for Beijing to reduce its trade surplus with the US by buying more American products, including high-tech items that do not have clear-cut military applications. Beijing is expected to boost its lobbying of US multinationals by opening its market to selected American firms in sectors ranging from agriculture to the financial industry.

 

In the long run, yielding larger chunks of the Chinese market to US companies may be the only way to avoid a trade war with Washington that will result in a lose-lose scenario. ■

 

 

*Willy Lam is an Adjunct Professor in the History Department and in the Master’s of International Political Economy Program at the Chinese University of Hong Kong; he is also a Select Professor of China Studies at Akita International University, Japan. Dr Lam specializes in areas relating to China’s economic and political reform as well as foreign policy and is currently writing a book on the new Chinese leader Xi Jinping.

 

**Pictured top right: Outgoing Chinese Premier Wen Jiabao with incoming Chinese President, Dr Xi Jinping in a file photo taken in March 2011. (AP Photo / Andy Wong)