China-Japan heightened tensions

S P SETH

The spat between China and Japan over their maritime dispute is entering a dangerous phase with potential to ignite a military confrontation. China lodged an official protest with Japan the other day when its ships entered an area in the Pacific and disrupted Chinese live ammunition military exercises. According to Colonel Yang Yujun, a defence ministry spokesman, “Not only did this interfere with our normal exercises, but endangered the safety of our ships and aircraft, which could have led to a miscalculation or mishap or other sudden incident.” He called it “a highly dangerous provocation” leading China’s defence ministry to make “solemn representations to the Japanese side.”

Both sides are determined to maintain their ground, with Japan insisting that it wouldn’t allow China to change the maritime status quo by military means. To this end, Tokyo is beefing up its armed strength and marshaling together a regional front, as China also has contested maritime boundary disputes with some other regional countries. Prime Minister Shinzo Abe reportedly said recently that, “There are concerns that China is attempting to change the status quo by force [in Asia], rather than by rule of law. But if China opts to take that path, then it won’t be able to emerge peacefully.” And he added, “So it shouldn’t take that path, and many nations expect Japan to strongly express that view. And they hope that as a result, China will take responsible action in the international community.”

Prime Minister Abe’s statement would seem to suggest two things. First, that Japan is anointing itself as the leader of a regional coalition to forewarn China against any military action to change the status quo. It is not clear if Abe has the authorization of the countries concerned to be speaking on their behalf, although he did have a series of summits with regional leaders recently. But, in the absence of any repudiation by countries contesting China’s maritime/territorial claims, it would seem that a political regional front, at the very least, is shaping up against China. Second, Tokyo has made it abundantly clear that it will refuse to budge from its position, even backing it up with military means if necessary. Even though the US is maintaining silence on saber rattling between China and Japan, it is clear that the two countries are allies with mutual obligations in a military conflict. In other words, the on-going brinkmanship has consequences that go beyond Japan-China bilateral relationship.

Ever since Shinzo Abe took over as Prime Minister last year, Japan has toughened its resolve to face up to China’s assertive claims of sovereignty over the Senkaku islands, which China calls Diaoyu. He recently said that “the security environment facing Japan is becoming ever more severe.” Japan is taking concrete measures to beef up its defences. It has raised defense expenditure, as has China over the last few years. It is scrambling jet fighters reacting to Chinese air and naval visits near disputed islands, and is threatening to shoot down Chinese drones if flying over Japanese air space. China says that it would be an act of war, and so it goes on. As part of its defence preparedness, Japan recently unveiled its biggest warship since WW11, which is more like an aircraft carrier. The ship reportedly has a flight deck nearly 250 metres long, and is designed to carry up to 14 helicopters. Its unveiling, in the context of growing tensions with China, gives it a special meaning.

Japan, at the same time, is keen to amend its pacifist constitution, which prohibits it from waging war. Although it has a defence force, it is supposed to be purely defensive. The government is slowly trying to get around Article 9 of the constitution that ties it down to a pacifist role. Indeed, Taro Aso, Japan’s deputy prime minister, recently suggested to follow the example of the Nazi Germany by simply scuttling the constitution, imposed on Japan by the victorious United States after WW11. That raised some hackles and the minister backed off, saying he was quoted out of context.

The deep hostility between China and Japan is rooted in contemporary history, starting with the Sino-Japanese war of 1894-95 with China roundly defeated and Japan emerging as a new modern power.  This came on top of China’s defeat and humiliation earlier in two Opium Wars of 1839-1842 and 1856-1860 at the hands of the British, with China exposed as a waning power and an easy prey. This encouraged Japan to make its own bid to gain territorial and commercial advantage from a declining China and hence the 1894-95 war. Japan subsequently went on to attack China during the thirties occupying Manchuria, and making further inroads during WW11 with reports of atrocities committed on Chinese people.

The bitter memories of those times are fresh in a rejuvenated and resurgent China, now keen to reclaim its ‘lost’ territories that once were supposedly part of its vast kingdom, including almost the entire Asia-Pacific region. While Japan is probably China’s most hated regional neighbor, Beijing’s maritime disputes with other regional countries are creating strategic convergence between Tokyo and some of the regional countries, like the Philippines and Vietnam, who had earlier hated Japan as much for its war crimes. China is not happy over it but attaches more importance to its national project of unifying its ‘lost’ kingdom from a bygone era. And this muddies the waters further, making it a regional issue rather than simply a bilateral China-Japan affair.

Japan is equally adamant about its territorial integrity. After its defeat in WW11 and occupation by the US, Japan was a lost country needing direction. It was also the time when the Cold War had started pitting the United States and its Western allies against the Soviet bloc. And Japan was coopted into the US bloc as an independent state but with its foreign and security policies under the US direction. With China part of the Soviet bloc in the early stages of the Cold War, Japan obviously was favoured in its, then dormant, territorial disputes. Since then these disputes have come into the open and China blames the United States for encouraging Japan on its course.

Some Chinese commentators often make the argument that the US has no business being in the Asia-Pacific region and fueling tensions. The counter argument, and indeed the US policy, is that the United States is as much an Asia-Pacific country with its Pacific coast and trade and strategic interests as China or any other regional country. In other words, the US “pivot” to Asia is a valid policy after more than a decade of wars in Afghanistan and Iraq. That makes US alliances with Japan and other Asia-Pacific countries part of its strategic axis. Which makes the ongoing China-Japan brinkmanship all the more dangerous. Unless there is a diplomatic resolution of the contested maritime disputes in the region, it is like living near a volcano that might erupt any time. 

Note: This article was first published in the Daily Times.

Contact: sushilpseth@yahoo.com.au        

Is China ready to replace US?

S P SETH

By hanging their dirty laundry for open display during the recent the fiscal crisis, the US political establishment rightly invited some serious criticism of its dysfunctional system. And the most telling came from Xinhua, the official Chinese news agency. Its commentary called on  “the befuddled world  [by events in the US] to start considering building a de-Americanized world”, including a new international reserve currency. Hitting the US hard by blaming it for the global economic crisis in the first place, the Xinhua said, “The world is still crawling its way out of economic disaster thanks to the voracious Wall Street elites.” Not letting off the US easily and highlighting risks to China’s investments in the US currency, the Xinhua pointed out that, “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.”

One can’t entirely blame the Chinese for lecturing the Americans, having been subjected to criticism from the US over a whole range of issues, though not without substance. Apart from exulting at the US political embarrassment, the Chinese have a real stake in the proper management of the US economy because they have invested over $ 1 trillion in US treasury notes and bonds. And any US default would have seriously damaged their investment in what has been generally regarded as, good as gold, US currency instruments. They should, therefore, be pleased, for that reason alone, that the US has come back from the brink, at least for the time being.

However, one may ask if the Chinese are really serious about “a de-Americanized world”, with a new international reserve currency? They certainly would like that but they have never spelled out the alternative. As Professor Jin Canrong of International Studies at Remin University has reportedly said, “We have talked about it for many years…. But in fact, the majority of China’s foreign currency reserves are still in US dollars.” Amplifying it, he added, “Since the late 1980s China has raised the idea of establishing a new world order, both politically and economically, but no one has any idea what that could be. China has been a beneficiary [of the present system], so what is the reason to change it?”

And how has China been the beneficiary? Because China’s currency wasn’t freely convertible, it has been able to keep its exchange rate artificially low, giving it an enormous competitive advantage in pricing of its goods for export; as well as from low (depressed) wages at home. But it hasn’t been an entirely one-way street. China’s low valued exports helped to control inflation in developed countries, not only through direct export of cheap Chinese goods but also with the US and western outlets setting up their own production lines in China to take advantage of its low production costs. Of course, China’s massive exports enabled it to build up large trade surpluses. But, by investing these surpluses in US treasury notes and the likes, it made available the same as credit to the United States and other developed countries.

Even though the US and other western countries often complained about their trade deficits, and sought revaluation of the Chinese currency to make trade competitive and balanced, they were never serious about taking on China on this, principally because it kept inflation under control in their countries. It is important to realize that inflation had been the curse of economies in developed and developing countries but that largely ceased to be an issue in rich countries with low consumer prices of Chinese goods and availability of credit for almost anything and everything. Partly, of course, the credit availability was the China magic with their surpluses invested in US dollars and, partly, a number of western countries and the United States decided to venture into floating all kinds of credit instruments creating an illusion of ever-increasing economic prosperity. The former US Federal Reserve chairman, Alan Greenspan, called it irrational exuberance but he kept the credit flowing as if the economy was on autopilot, not needing any regulation or direction. And we now know what happened, and the resulting global financial crisis is still causing havoc, with periodic political and financial gridlock in the United States. China, though, has so far weathered relatively well through the global crisis.

Ever since the 9/11 terrorists attacks in the US and the subsequent invasions of Afghanistan and Iraq, things haven’t gone too well for the United States. In the midst of it all it experienced the worst recession since the economic depression of the thirties. Even as the US has been pre-occupied with these wars, China has been consolidating its position and expanding its political horizons, particularly in the Asia-Pacific region, laying claims to a number of islands and waters around them in the South China Sea and the East China Sea. But its sovereignty there is contested by a number of regional countries, some of them with security pacts with the United States. But for the US presence and involvement in the Pacific, China would hope to sort it out with its regional neighbors.

China seemed to be cruising along well in its region with the US stuck in its wars in Afghanistan and Iraq. However, Obama’s 2111 announcement of the US “pivot” to Asia with a renewed and and expanded commitment to the region, complicated China’s regional strategy. Beijing would hope that the US’ financial and political problems, over time, constrict it increasingly from over-extending its reach in Asia-Pacific. It is not so much a matter of the US presence and involvement as the perception regionally of its seriousness and capacity to stand by its allies against China. And this recently took a hit when President Obama couldn’t even attend the Asia-Pacific Economic Cooperation (APEC) summit in Bali in Indonesia, and the East Asia summit in Brunei because of the crisis at home over the budget and the debt limit. Even though Obama’s absence was understandable but the US image as a dysfunctional superpower didn’t go well in the region. It is this perception that might push regional countries into making peace with China on the latter’s terms.

But even if this were to happen over whatever period of time, China is not prepared yet to replace the US dollar as the world’s reserve currency or a basket of currencies. With European economies in doldrums, and Japan still seeking to emerge from its two decades’ long economic stagnation, it would be difficult to put together a credible basket of international currencies to replace US dollar. And, as for China, it is economically and politically not yet in a position to become the world’s currency repository. In other words, the world might have to live with the US dollar as the world’s reserve currency for an indeterminate period.    

This article was first published in the Daily Times.

China’s faltering economy

S P SETH

During the recent trial of Bo Xilai, the ousted leader of the Chongqing metropolis of 30 million people, the People’s Daily, the Communist Party of China’s newspaper, remarked cryptically that, “Constant denials [of his crimes] will only bury you [Bo Xilai] deeper in a trap.” How true! Bo is now sentenced to spend the rest of his life in jail on corruption and reated charges. In political terms, though, his legacy would persist, having challenged the established system from within. By invoking Mao Zedong’s red flag he sought to rally people behind him, who feel short-changed by the system that favours the rich and powerful who have built fortunes through corruption and connections. Bo Xilai’s populist message is likely to resonate as China’s economic growth falters. China is still growing at around 7 per cent but it is not as good as 10 percent and above over the years. China needs a fairly steady high growth rate to soak up unemployment and to improve people’s living standards.

There are broadly two views about the country’s future economic prospects, and consequently its social and political stability. One view is that China has already set in motion a strategy to favour domestic consumption over an export-based economy. The exports and investment (construction) sectors will still remain an important component of growth but that growth will be constrained by slowing demand for Chinese goods in the US and European countries, and over-investment in infrastructure. As economist Patrick Chovanec, one time professor at Tsinghua University and now an economic strategist with a US asset management company, has reportedly said “…China has been growing for these last several years by adding to its capacity [like Japan did], but for growth to be real, that capacity has to be used.” But the fact of the matter is that, “There’s a lot of empty ports, empty apartment buildings, empty offices, empty airports company.” Unless these assets are productively used with a fair return on investment, they are a serious drag on the banking system.

China’s large economic stimulation package, which helped stave off recession from the global financial crisis, is now creating serious problems for the economy from an excessive growth in credit in the last few years. For instance, it has led local and regional administrations to push ahead with some dubious infrastructure projects. Similarly, easy credit led them to put money into shoddy financial transactions that has over-extended the banking system.  The debt to GDP ratio is now estimated to be above 200 per cent, about that of Japan.

 A big chunk of the money went into real estate, creating the potential of a boom/bust cycle, as happened in Japan. The real estate prices are now simply beyond the means of many people. As a result, there are many empty apartment buildings. The easy availability of credit and its shoddy use has entrenched corruption even further.  And corruption, especially at high levels, tends to erode the legitimacy of the political system. Indeed, many people are becoming deeply cynical about campaigns, at different times, to eradicate corruption, as the outcome is always patchy. And when some high level party bigwigs are caught in the campaign, it is generally because they have fallen out of favour with the party headquarters, as is the case with Bo Xilai.

Bo Xilai lost his political battle to the party front line, and was dumped as party chief in Chongqing, and charged with abuse of power, bribery and so on.   His wife has already been convicted of murder of the British businessman, Neil Heywood, and was given a suspended death sentence. It is quite possible that he and his family built up a vast fortune through corruption and abuse of power. But so have many others at the top party levels.

Indeed, a New York Times investigation had found that Wen Jiabao’s family, till recently prime minister, had built up a fortune in questionable ways. Another investigation by Bloomberg also dug up  corruption material on Xi Jinping’s (the current president) family. Whether or not it is true is beside the point. The point is that if a party leader falls out of favour, he/she will pay a terrible price.  

Corruption is so entrenched in the system that most party officials, at all levels, are part of it. This is common knowledge and the people’s cynicism is understandable. Even the mighty People’s Liberation Army (PLA) is infected with it. Take the case of Lieutenant General Gu Junshan, till recently deputy chief of the general logistics department who left his post in February last year without any official explanation. He probably would be charged soon with corruption. Senior Colonel Gong Fangbin recently said in an interview with the official Global People that, “When corruption has become a type of culture, and has developed to a certain level [at the top], change becomes very difficult.” Its seriousness was highlighted by General Liu Yuan, son of a former (but disgraced) president Liu Shaoqi, at one time number 2 under Mao Zedong, who reportedly said in December 2011 that, “No country can defeat China. Only our own corruption can destroy us and cause our armed forces to be defeated without fighting.”

In the midst of it all, the example of western liberal democracy (even with its many faults) is terribly destabilizing for China’s political system. The Communist Party rulers seem quite worried about this. In this connection, the New York Times has quoted from a memo referred to as “Doctrine Number 9”, apparently emanating from the top level (s) cautioning Party cadres against perils threatening the system. These reportedly are: “Western constitutional democracy”, “universal values” of human rights, western-inspired notions of media independence and civil society, ardently pro-market “neo-liberalism” and “nihilist” criticism of the party’s traumatic past. The document goes on to say, “Western forces hostile to China and dissidents within the country are still constantly infiltrating the ideological sphere” as well as stirring up “trouble about disclosing officials’ assets, using the internet to fight corruption, media controls and other sensitive topics…”

An important element in this hypersensitivity is that the country’s economy is now at a critical point. According to Charlene Chu, the senior director in Beijing of the Fitch rating agency, “The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem and potentially into a Japanese-style deflation.” The problem is further compounded from the parallel shadow banking system operating outside the system. As Charlene goes on to say, “There is no transparency in the shadow banking system and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is.”

It is, therefore, not surprising that the top party leadership is worried at the complex interplay between the country’s economy, social stability and latent threat to the political system. But there doesn’t seem any immediate danger to the party’s rule because the state in China is very powerful, and has all the regulatory and control mechanism to deploy. Besides, it has deep pockets with an estimated $3 trillion worth of foreign currency reserves, and its debt is mostly internal.

Note: This article was first published in the Daily Times.

Contact: sushilpseth@yahoo.com.au 

Will China eclipse US?

S P SETH

When China sneezes, Australia catches cold, metaphorically speaking. Australia’s prosperity over the last ten years is significantly underpinned by continuing high economic growth in China. If China’s growth rate is even fractionally low, Australia’s stock market, particularly its resources sector, loses badly. Australia’s good economic fortune depends on high demand from China of its mining and mineral resources at high prices. Australia might be a special case of a direct link between its prosperity and China’s growth rate but, in varying degrees, China is now a growth engine for global economy, especially at present times when much of the western world is either growing at a snail’s pace or actually in the negative growth territory.

Which brings us to China’s rise into a future superpower; that future, according to some analysts, is getting closer and closer.  One of the most confident predictions in this regard is made by Arvind Subramanian in an article he wrote in the US journal, Foreign Affairs, entitled “The Inevitable Superpower”, now expanded into a book called, Eclipse: Living in the Shadow of China’s Economic Dominance. Subramanian wrote in his Foreign Affairs article, “ The upshot of my analysis is that by 2030, relative US decline will have yielded not a multipolar world but a near-unipolar one dominated by China.” He added, “China will [then] account for close to 20 per cent of the global GDP (measured half in dollars and half in terms of real purchasing power) compared with just under 15 per cent of the United States.”

He goes on, “At that point, China’s per capita GDP will be about $33,000, or about half of US GDP. In other words, China will not be dirt poor, as is commonly believed. Moreover, it will generate 15 percent of word trade--- twice as much as will the United States.” Therefore, “by 2030, China will be dominant whether one thinks GDP is more important than trade or the other way around; it will be ahead on both counts.”

 Subramanian doesn’t think that the US can reverse this trend because it has multiple economic problems. In his words, “… the country has a fiscal problem, a growth problem, and, perhaps most intractable of all, a middle class problem… High public and private debt and long-term unemployment will depress long-tem growth.”

And what is this middle class problem? It is that, “The middle class is feeling beleaguered: It doesn’t want to have to move down the skill ladder, but its upward prospects are increasingly limited by competition from China and India.”

China’s economic dominance over time will enable it to translate this into achieving its political objectives, the same way as the US did since WW11. Being a country deeply in debt to China, the US might find it increasingly difficult over time to stand up to China in its regional territorial and maritime disputes, thus enabling Beijing to prevail in the region. Subramanian has made a strong case that China, most likely, would eclipse the US as a superpower over the next few decades. He admits, though, that it might still “mess up”.

The problem with Subramanian’s thesis is that its linear argument is too neat without making any allowance for different variables. Generally speaking, economic forecasts are qualified to indicate that a certain outcome is likely if other factors remain equal. For instance, very few economists foresaw the global financial crisis that is still hobbling US economy and creating severe problems for the European Union. The global economic curve was supposed to be going upward all the time. Such was the magic of the new economy, so they said.  

In China’s case, it has severe unresolved social, economic and political problems, not to speak of intractable maritime disputes with a number of its neighbours tied in with the US in bilateral alliances. China’s Leninist polity, with Communist Party enjoying monopoly power, and a partial capitalist economy, is complicating things all the time. There is lack of transparency, large scale corruption, widening economic disparities between regions and among people, and the absence of any kind of higher idealism that Mao promoted and that many people in China, including in the CPC, are keen to bring about. With all these issues around, it is a brave man that would make such a confident prediction as in Subramanian’s thesis. He might turn out to be right but a guarded forecast might be in order.

An entirely opposite conclusion is reached by Edward N. Luttwak in his book, “The Rise of China vs. The Logic of Strategy”. He finds fault with China’s strategy of messing up its relations with its regional neighbours with its maritime claims, thus damaging China’s superpower prospects. Reviewing his book in the New York Review of Books, Ian Johnson writes that, “If accurate, Luttwak’s theory means Americans don’t have to worry too much. China will essentially self-destruct, at least diplomatically. And the list of problems facing China make it seem that this could well be happening right now.”

Yet another view is that as China goes along, it will change and adapt to manage its rise. Odd Arne Westad broadly expostulates this view in his book:  Restless Empire: China and the World since 1750.

China carries heavy weight of its history on its back. It is reflected at two levels. The first is an intense pride in its hoary history and civilization as the Middle Kingdom, with its territorial and maritime claims in the region based on ancient maps going back several centuries of dynastic rule. Beijing refuses to accept that the intervening colonial conquests and the rise of nation states might militate against such claims and that these might have to be revisited through negotiations.

The second is a great sense of humiliation and consequent anger from nearly 200 years of being subjected to Western and Japanese intervention and invasion. It is now determined to restore China’s rightful historical place in the world. China believes that this phase (of colonial humiliation) was just an aberration in its otherwise glorious history and that the new China must rectify this situation.

Both aspects of its history, its glory and a period of humiliation it suffered, seem to be reinforcing each other to push China into a new historical phase of reclaiming its past and recreating a new future. And with its power growing economically, politically and militarily China has the confidence that it can do it again and become the new Middle Kingdom to eclipse the United States as the world’s only superpower.

Note: This article was first published in Daily Times. 

Contact: sushilpseth@yahoo.com.au

China: challenges for the new leadership

By S P SETH

With the confirmation of Xi Jinping as China’s new president this month at the National People’s Congress (NPC), the political transition from the outgoing leader, Hu Jintao, would be complete.  Indeed, the transition effectively had taken place last November when the Communist Party of China (CPC) chose Xi as its general secretary, because all political power in China flows from the party. With the formal NPC confirmation of Xi as the country’s new president, he will become China’s most powerful leader by combining the offices of the party general secretary and president of the country. Li Keqiang will become China’s new prime minister, replacing Wen Jiabao. The new team has many challenges facing them.

A important challenge facing Xi Jinping will be to clear the debris from the Bo Xilai affair who was removed from his position as the leader of Chongqing metropolis last March, around the time of the then party conclave. He is accused of a litany of crimes but his trial is still awaited. It appears that he is not ready to self-incriminate himself, as his wife Gulai did, and disappear from the political scene quietly. His pedigree as the son of a revolutionary veteran is reported to give him some protection from a forced confession.

Be that as it may, his brand of politics of reviving Maoist slogans did win him popular and powerful support at some levels. Even though he is almost finished politically, his Maoist brand has enough traction in the mist of high-level corruption and widening economic disparities.

The new leader Xi Jinping’s task will be to reconcile Mao’s revolutionary politics with Deng Xiaoping’s focus on economic growth. If he panders to the left wing of the party espousing Maoism to appease Bo Xilai constituency, he is likely to offend the liberal-right in the party that are for more economic reform in Deng Xiaoping’s tradition. To bridge this contradiction he has sought recently to emphasize continuity between Mao’s revolutionary politics and Deng’s reforms. The continuity claim is tenuous and problematic because Mao would have been horrified to see the loss of revolutionary and ideological ethos that was the hallmark of his times. It would be to ignore completely the Cultural Revolution in mid-sixties, till his death in 1976, that Mao launched to restore revolutionary purity, as he saw it.

Because of the highly uneven growth of China’s economy, with rich becoming richer and corruption thriving, a nostalgia for Mao’s times and politics, is very much there in sections of the party and the people. It is, therefore, not surprising that Xi is keen to take the Party’s left with him by emphasizing continuity between the Mao and Deng periods. At the present, however, it would seem that the CPC has lined up behind him to see how he would reconcile the irreconcilable of Mao’s politics and ideology with Deng’s pragmatism. When times are tough and social unrest gathers momentum, these contradictions tend to come on the surface creating complications.

 Another challenge for Xi will be to deal with the call from some sections of the party for political reform. The retiring prime minister Wen Jiabao was one of them. Without political reform, the argument goes, the system is lacking transparency and accountability leading to massive corruption. And corruption, if not tackled genuinely and seriously, has the potential of destroying the party, as people are increasingly cynical and losing faith. But any serious effort at eradication of corruption has to begin at the top. At the top, though, many party functionaries and their families are beneficiaries of the system with economic rewards flowing from political power. This is why, with all the talk of corruption eradication, nothing much seems to happen. Will Xi Jinping wield the broom to clean up the mess? That will remain to be seen.

At another level, the phenomenal growth of internet users in China (an estimated over 500 million Chinese have access to the internet), and its own social media and blogs, has put the CPC regime under scrutiny, with people demanding answers and a greater role in what goes on. Despite firewalls and strict censorship of the political debate, the savvy among the internet users, a small minority admittedly, is able to circumvent this by logging on to outside channels. This challenge has been building up for many years and is reaching a critical mass, requiring the regime to deal with pent up demand for political reforms giving people some voice in what is decided for them.

However, the CPC is against Western-style democracy, fearing this will lead to chaos and anarchy. But they also have no alternative political blueprint, except vague talk of democracy with Chinese characteristics--whatever that means. Indeed, their opposition to free wheeling democracy has been further reinforced since the fall of the communist system and collapse of the Soviet Union in the early nineties, attributed to Gorbachev’s hasty introduction of political restructuring (perestroika) in late-eighties. The Chinese leadership, from Deng Xiaoping onwards, fears that any introduction of perestroika might do to China what it did to the Soviet Union. And Xi Jinping is committed not to go the Gorbachev way.

Facing this herculean task of bridging China’s growing internal contradictions, both within the party and between the party and the people, will be the big challenge facing the new leadership. Which doesn’t mean that China will not continue to grow economically, though at a relatively slower pace, and make waves internationally. The only danger is that, at some point, these internal contradictions might explode with the party unable to contain, guide and channel them constructively.

We have seen this happening with the Arab Spring where a simultaneous social and political explosion has left the landscape charred because it was so sudden, unexpected and directionless. Chinese leaders are aware of it as they have tried to censor any reference to the Arab Spring and associated popular protests in their media and on the internet. Knowing that this could happen in China too, one would hope that the Chinese leadership would take the lead to initiate political change while they can still manage and channel it.

The change doesn’t have to be imitative of the Western democracy or Gorbachev’s perestroika. With their considerable inventiveness as shown in their economic growth strategy, it shouldn’t be beyond China’s leadership to introduce some sort of popular political participation to make it a double act of economic and political liberalism. Will they do it? That is the big question.