The following essay appeared in an edited, cut-down form on the China Daily website.

The challenges that China faces over the next decade are a product of changes in the country’s external environment together with the consequences of China’s home-grown transformation.

The external context has shifted in two profound respects. A decade ago, the Western economies still seemed in relatively robust health and were growing at a reasonable rate. Since 2008, that picture has changed dramatically. The Western economies are mired in a deep structural crisis which shows no sign of being resolved. This is the worst crisis of Western capitalism since the 1930s and it seems likely that the crisis has not yet even reached its halfway point. In other words, the Great Recession will last at least until the 19th Communist Party Congress, and perhaps even, in the case of Europe in particular, the 20th Congress in 2022.

This has major consequences for China. Western export markets could well continue to be depressed for some years to come, a reality which China will have to factor into its economic expectations and policies. It can no longer rely on or expect a buoyant Western economy, as has been the case for virtually the whole of the reform period. And the longer the Western crisis persists, the greater the likelihood of the politically unpredictable and unexpected.

The second change concerns the relationship between China and the United States. Hitherto this relationship, with twists and turns, has been relatively stable for a remarkably long time; a fixed point in China’s external environment. There are strong indications that this may be changing. The premise of the relationship has been that China needed the US more than the US needed China: in other words, it was unequal. China’s rise and American decline, however, are changing the equation. The relationship needs to be put on a more equal footing. Can the Americans, habituated to being the dominant partner in every single one of their external relationships, adjust to the new situation? The most optimistic answer we can give is: only with extreme reluctance and only over a protracted period. As a result it seems likely that over the next decade relations between the two countries will become increasingly difficult and tense. The clearest evidence of this has been in East Asia with the so-called American pivot. In the region where China’s rise and America’s decline have been most palpable, the Americans are seeking to return to something more like the status quo ante. They are in denial of the irreversibility of their own decline. As a consequence the outlook for the region has become clouded in uncertainty and marked by growing tensions.

This raises the more general question of how China will manage its global rise. There is nothing intrinsically new here: China has been confronted with the same basic problem for the last decade. However, as China’s global influence grows exponentially, so does the challenge this poses for Chinese foreign policy. Hitherto Chinese foreign policy has been shaped by Deng Xiaoping’s guidelines: namely, creating the best possible external environment for China’s economic growth, not antagonising others unnecessarily, declining to show leadership, and prioritising the relationship with the United States. But now that China is strong rather than weak, and has amassed an array of global interests, it will need to articulate a far more comprehensive and strategic foreign policy. Some of Deng’s propositions remain highly relevant, others have been superseded by China’s rise. The new questions that spring to mind include: what is China’s vision for the international order, what kind of relationship – beyond mercantilism – does China want with other countries (for example its new partners in Africa, Latin America and East Asia), and what should be the narrative of Chinese foreign policy.

There is one sense in which Deng’s philosophy remains as relevant as ever, however: foreign policy should be designed to reassure and win over rather than antagonise if it is to create the most favourable environment for China’s rise. My concern in this context has been China’s claims in the South China Sea. China speaks with two voices: some voices claim the whole of the South China Sea, others speak more narrowly of the Spratly and Paracel Islands. This hardly serves to reassure; on the contrary, it promotes confusion and sows anxiety and fear. Furthermore, there appear to be at least seven different Chinese agencies involved in implementing, defining and pursuing China’s aims, often it would appear with rather different agendas. China’s position appears ill-thought-out, open-ended and incoherent. China’s handling of South East Asian nations is interpreted by many around the world – not unreasonably – as a litmus paper test for how China as a great global power will treat small nations. Its strategy towards the ASEAN nations between 1997 and 2009 was brilliant; over the last two years it has been far from it. China can ill-afford to squander the goodwill it has so painstakingly built up. There are important lessons here for the conduct of Chinese foreign policy over the next decade.

This brings me finally to domestic matters. The challenges here are a product of China’s transformation. The latter has created not just a rapidly changing society but also increasingly a different kind of society with new norms, values, aspirations and expectations. The two most negative aspects of China’s economic transformation have been what appear to be a huge growth in corruption and a large increase in disparities in wealth and income. These are a toxic combination which are potentially hugely damaging to the political consensus that has sustained the reform process and could fatally undermine the present government. They are about a sense of fairness and inclusivity rather than the ability of the powerful to appropriate whatever they can lay their hands on. The sums mentioned in the Bo Xilai case, for example, are enormous.

It is clear – not least from the recent statements of Hu Jintao and Xi Jinping – that previous attempts to tackle these problems have been grossly inadequate and have overwhelmingly failed. They have failed through a lack of political will and the fact that the fight against corruption has been treated as a relatively private party matter to which few have had access. A new kind of approach is required which recognises that this is now a fundamental priority, which is prepared to make the matter properly public and which seeks to involve the public in whistle-blowing. A register needs to be kept of the assets of leading members of the party and government, and their families, at all levels which is easily accessible to the public. A more open and independent media would help this process as would an increasingly independent legal system. Such political reform would serve to enhance the legitimacy of the party and government. If the present situation is allowed to continue and fester, the party’s credibility in a decade’s time could be greatly, and perhaps dangerously, diminished.

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