China’s Biggest Challenges: Seven Things Xi Needs to Nail in 2017
Last year turned out pretty well for Chinese President Xi Jinping. The economic slowdown stabilized, relations with neighbors such as the Philippines improved, and Xi strutted the global stage while hosting the Group of 20 for the first time. The year ahead, however, could be more trying as Donald Trump enters the White House and Xi presides over a Communist Party reshuffle.
Here are seven challenges facing Xi in 2017:
Politics
A party congress planned for the fourth quarter marks a pivotal juncture in Xi’s reign as China’s top leader and could unveil his possible successors five years on. The closed-door gatherings in Beijing will reshuffle much of the ruling party’s Central Committee, with as many as 11 of the elite Politburo’s 25 members due to step aside, if past retirement conventions are followed.
Xi, whom the party anointed as its “core” leader in October, could use that authority to dispense with age limits and maintain his preferred lineup on the Politburo’s seven-member Standing Committee. All but Xi and Premier Li Keqiang exceed the unofficial retirement age of 68.
China’s Politburo Standing Committee
68 or older
Standing Committee
Xi Jinping
63
Li Keqiang
61
Zhang
Yu
Liu
Wang
Zhang
President
Premier
Dejiang
70
Zhengsheng
71
Yunshan
69
Qishan
69
Gaoli
70
Chairman,
Chairman,
Secretary,
Secretary,
Vice Premier
National
Chinese
Central
Central
People’s
People’s
Secretariat
Commission
Congress
Political
for Discipline
Consultative
Inspection
Conference
Source: Chinese Communist Party
China’s Politburo Standing Committee
68 or older
Standing Committee
Xi Jinping
63
Li Keqiang
61
Zhang
Yu
Liu
Wang
Zhang
President
Premier
Dejiang
70
Zhengsheng
71
Yunshan
69
Qishan
69
Gaoli
70
Chairman,
Chairman,
Secretary,
Secretary,
Vice Premier
National
Chinese
Central
Central
People’s
People’s
Secretariat
Commission
Congress
Political
for Discipline
Consultative
Inspection
Conference
Source: Chinese Communist Party
China’s Politburo Standing Committee
68 or older
Standing Committee
Li Keqiang 61
Premier
Xi Jinping
63
President
Zhang
Yu
Liu
Wang
Zhang
Dejiang
70
Zhengsheng
Yunshan
69
Qishan
69
Gaoli
70
Chairman,
71
Secretary,
Secretary,
Vice Premier
National
Chairman,
Central
Central
People’s
Chinese
Secretariat
Commission
Congress
People’s
for Discipline
Political
Inspection
Consultative
Conference
Source: Chinese Communist Party
China’s Politburo Standing Committee
68 or older
Standing Committee
Xi Jinping
63
Li Keqiang
61
President
Premier
Zhang
Yu
Liu
Dejiang
70
Zhengsheng
Yunshan
69
Chairman,
71
Secretary,
National
Chairman,
Central
People’s
Chinese
Secretariat
Congress
People’s
Political
Consultative
Conference
Wang
Zhang
Qishan
69
Gaoli
70
Secretary,
Vice Premier
Central
Commission
for Discipline
Inspection
Source: Chinese Communist Party
Economy
China’s decades-long economic boom has helped the Communist Party’s rule endure well into the 21st century. Now, after accumulating worrying levels of debt to sustain smokestack industries, Chinese leaders are attempting to shift their priorities from growth to stability. Low government debt gives Xi plenty of fiscal grease to toss in the works, even as the central bank tightens the screws to rein in corporate debt.
China’s Economic Growth has Flattened
16%
14
12
10
8
6
4
2006
2016
China’s Economic Growth has Flattened
16%
14
12
10
8
6
4
2006
2016
China’s Economic Growth has Flattened
16%
14
12
10
8
6
4
2006
2016
China’s Economic Growth has Flattened
16%
14
12
10
8
6
4
2006
2016
Corporate Debt Has Soared as a Percentage of GDP
237%
19
22
41
160%
30 Banks
15 Governments
18 Households
165
105 Corporations
2005
2015
Corporate Debt Has Soared as a Percentage of GDP
237%
19
22
41
160%
30 Banks
15 Governments
18 Households
165
105 Corporations
2005
2015
Corporate Debt Has Soared as a Percentage of GDP
237%
19
22
41
160%
30 Banks
15 Governments
18 Households
165
105 Corporations
2005
2015
Corporate Debt Has Soared as a Percentage of GDP
237%
19
22
Banks
41
160%
Governments
30
Households
15
18
165
105
Corporations
2005
2015
Diplomacy
Trump is already giving Chinese diplomats headaches as he attacks Beijing’s currency practices and questions longstanding U.S. policy on the third-rail issue of Taiwan. Xi must calibrate his response. Show strength and keep nationalists happy at home? Or compromise to placate Trump and preserve international stability?
Pressure Points
Trump’s rise
complicates
China’s plans
for a bigger
global role
North Korea
is accelerating
its nuclear
weapons
development
Relations are
deteriorating
with Taiwan’s
new leader
Neighbors
are pushing
back against
South China
Sea claims
India, Myanmar
and Pakistan
pose security
challenges
NORTH
KOREA
Beijing
CHINA
PAKISTAN
INDIA
TAIWAN
South
China
Sea
MYANMAR
PHILIPPINES
VIETNAM
Pressure Points
Trump’s rise
complicates
China’s plans
for a bigger
global role
North Korea
is accelerating
its nuclear
weapons
development
Relations are
deteriorating
with Taiwan’s
new leader
Neighbors
are pushing
back against
South China
Sea claims
India, Myanmar
and Pakistan
pose security
challenges
NORTH
KOREA
Beijing
CHINA
PAKISTAN
INDIA
TAIWAN
South
China
Sea
MYANMAR
PHILIPPINES
VIETNAM
Pressure Points
North Korea
is accelerating its nuclear weapons
development
Relations are
deteriorating
with Taiwan’s
new leader
Neighbors
are pushing
back against
South China
Sea claims
India,
Myanmar
and Pakistan
pose security
challenges
Trump’s rise
complicates
China’s plans
for a bigger
global role
Beijing
NORTH
KOREA
CHINA
PAKISTAN
INDIA
TAIWAN
South
China
Sea
MYANMAR
PHILIPPINES
VIETNAM
Pressure Points
Beijing
NORTH
KOREA
CHINA
PAKISTAN
TAIWAN
INDIA
PHILIPPINES
MYANMAR
VIETNAM
Trump’s rise
complicates
China’s plans
for a bigger
global role
Relations are deteriorating with Taiwan’s
new leader
North Korea
is accelerating its nuclear
weapons
development
Neighbors
are pushing back against South China Sea claims
India, Myanmar and Pakistan pose security
challenges
Trade
Trump has blamed China for much of the decline of America’s manufacturing base. As the billionaire real estate developer and former “Apprentice” host seeks a more favorable deal on trade, Xi may need to jimmy open long-sheltered services industries, or use the crowbar to fight back if negotiations turn scrappy. China has a host of options for retaliation if Trump opens a trade war.
Trade Total
China
U.S.
$5,000B
4,000
3,000
2,000
1,000
0
1996
2015
Trade Total
China
U.S.
$5,000B
4,000
3,000
2,000
1,000
0
1996
2015
Trade Total
China
U.S.
$5,000B
4,000
3,000
2,000
1,000
0
1996
2015
Trade Total
China
U.S.
$5,000B
4,000
3,000
2,000
1,000
0
1996
2015
Trade Imports
Trade Exports
$2,500B
$2,500B
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
1996
2015
1996
2015
Trade Imports
Trade Exports
$2,500B
$2,500B
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
1996
2015
1996
2015
Trade Imports
$2,500B
2,000
1,500
1,000
500
0
1996
2015
Trade Exports
$2,500B
2,000
1,500
1,000
500
0
1996
2015
Trade Imports
$2,500B
2,000
1,500
1,000
500
0
1996
2015
Trade Exports
$2,500B
2,000
1,500
1,000
500
0
1996
2015
Currency
China’s currency is under increasing pressure from the greenback, with the Federal Reserve tightening monetary policy and Trump vowing to juice the U.S. economy with tax cuts and infrastructure spending. As Chinese savers rush to covert yuan to other currencies, the government may need to increase capital controls and spend down foreign exchange reserves to keep outflows from accelerating.
China’s Yuan Is Weakening Against the U.S. Dollar
¥6.0
6.2
Era of relative
yuan stability
China changes the way
it values yuan
6.4
China
devalues
yuan
6.6
6.8
7.0
1/2/2014
1/15/2015
1/4/2016
12/30/2016
China’s Yuan Is Weakening Against the U.S. Dollar
¥6.0
6.2
Era of relative
yuan stability
China changes the way
it values yuan
6.4
China
devalues
yuan
6.6
6.8
7.0
1/4/2016
1/2/2014
1/15/2015
12/30/2016
China’s Yuan Is Weakening Against the U.S. Dollar
¥6.0
6.2
China changes
the way it
values yuan
Era of relative
yuan stability
6.4
China
devalues
yuan
6.6
6.8
7.0
1/2/2014
12/30/2016
China’s Yuan Is Weakening Against the U.S. Dollar
¥6.0
6.2
Era of relative
yuan stability
6.4
China
devalues
yuan
6.6
China
changes
the way
it values
yuan
6.8
7.0
1/2/2014
12/30/2016
China’s Capital Outflows Since Early 2014
$100B
50
0
-50
-100
-150
-200
1/2016
1/2015
1/2014
11/2016
China’s Capital Outflows Since Early 2014
$100B
50
0
-50
-100
-150
-200
1/2016
1/2015
1/2014
11/2016
China’s Capital Outflows Since Early 2014
$100B
50
0
-50
-100
-150
-200
1/2014
11/2016
China’s Capital Outflows Since Early 2014
$100B
50
0
-50
-100
-150
-200
1/2014
11/2016
Environment
China’s increasingly wealthy middle class is worried about the quality of air it breathes and water it drinks and has become more vocal about complaints. With Beijing again cloaked in smog at the start of the year, Xi faces continued pressure to show he’s doing what it takes to clean things up.
China’s Air Has Among the Highest Levels of Fine Particulate Pollution in Asia*
Beijing
Seoul
CHINA
Shanghai
INDIA
Hong Kong
THAILAND
Manila
Bangkok
PHILIPPINES
MALAYSIA
Singapore
Low
High
INDONESIA
*Average PM2.5 in 2014
Source: World Health Organization
China’s Air Has Among the Highest Levels of Fine Particulate Pollution in Asia*
Beijing
Seoul
CHINA
Shanghai
INDIA
Hong Kong
THAILAND
Manila
Bangkok
PHILIPPINES
MALAYSIA
Singapore
Low
High
INDONESIA
*Average PM2.5 in 2014
Source: World Health Organization
China’s Air Has Among the Highest Levels of Fine Particulate Pollution in Asia*
Beijing
Seoul
CHINA
Shanghai
INDIA
Hong Kong
THAILAND
Manila
Bangkok
PHILIPPINES
MALAYSIA
Singapore
Low
High
INDONESIA
*Average PM2.5 in 2014
Source: World Health Organization
China’s Air Has Among the Highest Levels of Fine Particulate Pollution in Asia*
Beijing
Seoul
CHINA
Shanghai
INDIA
Hong Kong
THAILAND
Manila
Bangkok
PHILIPPINES
MALAYSIA
Singapore
Low
High
INDONESIA
*Average PM2.5 in 2014
Source: World Health Organization
Chinese tourists are going on lung-cleansing trips to escape smog
Reform
More efficient cities, better pensions, improved worker mobility and greater planning for demographic aging—these are what’s needed to sustain China’s momentum beyond 2017. Stoking growth in services and consumption is key to the economy’s transition, as is ensuring that 2017 runs to plan.
China’s Population Is Growing Older and More Urban
1982
Rural
Age
Urban
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
120M
0
0
120M
2010
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
90
-
94
95
-
99
100+
120M
0
0
120M
Source: United Nations
China’s Population Is Growing Older and More Urban
1982
Rural
Age
Urban
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
120M
0
0
120M
2010
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
90
-
94
95
-
99
100+
120M
0
0
120M
Source: United Nations
China’s Population Is Growing Older and More Urban
1982
Rural
Age
Urban
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
120M
0
0
120M
2010
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
90
-
94
95
-
99
100+
120M
0
0
120M
Source: United Nations
China’s Population Is Growing Older and More Urban
1982
Rural
Age
Urban
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
120M
0
0
120M
2010
0
-
4
5
-
9
10
-
14
15
-
19
20
-
24
25
-
29
30
-
34
35
-
39
40
-
44
45
-
49
50
-
54
55
-
59
60
-
64
65
-
69
70
-
74
75
-
79
80
-
84
85
-
89
90
-
94
95
-
99
100+
120M
0
0
120M
Source: United Nations