China plays it safe ahead of key leadership changes

Last month's Group of 20 (G-20) summit in Hangzhou, which Chinese President Xi Jinping presided over, produced a communique calling for enhanced policy cooperation on the international economy together with structural reform and innovation, as well as an expression of opposition to protectionism.

Notably absent was any mention of contentious issues such as the South China Sea or the nuclear missile developments in North Korea. Some observers suggested that China had pulled out all the stops to avoid raising the South China Sea issue but this criticism was hardly impartial.

True, China prefers not to shine a spotlight on those sensitive issues, but since the first G-20 in 2008 - the year of the global financial crisis - the agendas that the summit has focused on were mostly concerned with the international economy and finance. Other issues raised at the G-20 have mostly been global concerns such as climate change or measures to counter infectious disease. Economic matters, such as steel overproduction and related export problems, were discussed at the summit meetings even if it was inconvenient for China.

Still, it must be said that even in the realm of the economy and finance, the Sept 4 to 5 summit produced little of great significance. In his keynote speech opening the meeting, President Xi said that while the international economy was on track for a recovery, there are still risks and challenges ahead. He called on the G-20 to step up its efforts in five areas: Strengthen policy collaboration at the macro level and promote growth with policies such as fiscal, monetary and structural reform; innovate the development model and focus on measures for both the supply and demand sides in the long and short terms; promote reforms to the international monetary system and the structure of international finance; continue to liberalise trade investment and caution against protectionism; and implement the 2030 Agenda for Sustainable Development.

China’s President Xi Jinping speaks during the opening ceremony of the G20 Summit in Hangzhou on Sept 4, 2016. PHOTO: AFP 

There was a striking lack of original ideas and it would appear that China had simply inserted its internal policies into the communique of the G-20 summit leaders. The contrast with the headline-grabbing initiatives that China unveiled when President Xi chaired the Asia-Pacific Economic Cooperation (Apec) Leaders' Meeting in Beijing in November 2014 could not have been more stark.

Back in 2014, China had been waiting for a good opportunity to signal its new "economic superpower diplomacy", including the One Belt, One Road project, the Asian Infrastructure Investment Bank, and the establishment of the Silk Road Fund. These spectacular new initiatives were not incorporated in the official summit declaration, but they captured international interest and overshadowed the official agenda.

That was two years ago, and China has changed. First, the Chinese economy has lost some of its vigour. Some of this slowing may be what President Xi intended, as suggested by his slogan "The new normal", but last summer, Chinese share prices crashed, raising speculation that the yuan would be devalued and triggering shockwaves from China that reached the international financial markets. Since then, international expectations of Chinese economic growth have been revised considerably downward, with attendant drops in resource and energy prices.

At first, the One Belt, One Road initiative was widely reported as though China's high-speed railway network would cross the Eurasian continent, but the Silk Road Fund established subsequently has been cautious in its choice of projects. The initial announcement was so spectacular that there may have been some disappointment among those of China's neighbours that had been anticipating investment, but the current sensible approach is right in view of the fact that the fund is in charge of "investment not aid".

In general, the primary focus of President Xi and China may have been to safely weather the present G-20. Unlike Apec two years ago, this is not the time for China to unveil new initiatives, in particular because the National Congress, when members of the Politburo Standing Committee will be selected, is due next autumn. In the United States, the phrase "election year" is widely used to refer to the difficulty of making big political decisions in years such as this one. That is true for any democracy, but the phenomenon in China is perhaps more akin to the season for personnel reshuffles.

Assuming this argument is correct, we may not see contentious policies emerging from China until after autumn 2017.

When the topic turns to the sensitive issue of the South China Sea, one of the reasons why Beijing responded so strongly to the July ruling of the Arbitral Tribunal at The Hague was that the fact that China was handed a defeat far more complete than imagined may have only complicated the sensitive leadership reshuffle process.

If we take the same perspective and construct a hypothesis of how China will handle the South China Sea issue going forward, it follows that this problem will be managed such that it does not become a source of unexpected drama.

However, that does not mean China will exercise self-restraint to avoid escalating the conflict. If China should choose not to deepen friction with other countries over the South China Sea, that might reflect the stance of China's internationalist faction but would in turn antagonise the hardliners.

From now on, we can only keep a close watch on the kind of policies formed in China to see which are not biased in favour of either the arguments of the hardliners or those of the internationalists, and thus are deemed "well-balanced" within the Communist Party of China.

  • The writer, a former diplomat at the Japan Embassy in Beijing, is president of Tsugami Workshop, a research institute on the Chinese economy.
A version of this article appeared in the print edition of The Straits Times on October 11, 2016, with the headline 'China plays it safe ahead of key leadership changes'. Print Edition | Subscribe