China in 2016: Year in Review
China Focus reviews 2016′s top stories and how they were covered here at UCSD:
Donald Trump Says ‘China. CHINA. China’
There’s no getting around it, Donald Trump is the biggest story of 2016. Candidate Trump, advised by UCI economist Peter Navarro, threatened to impose a 45% tariff on Chinese imports on the campaign trail. President-elect Trump sent shockwaves through the foreign policy establishment by suggesting that the U.S. is not bound by the ‘One-China Policy’ and appointed Navarro, the author of Death by China, to a White House post overseeing trade policy. Professor Susan Shirk labeled Trump’s phone call with Taiwanese President, Tsai Ing-wen, an “impulsive” move and a “bad sign for Trump foreign policy.”
Our three-part series on Chinese views on the U.S. presidential election were among the most read articles in 2016. Trump’s popularity in China, despite his China-basing rhetoric, was particularly surprising to our American readers. Part one surveys attitudes among Chinese students at UCSD GPS on the candidates on the eve of Super Tuesday. In part two, Chutian Zhou makes the case that China had a vote in the election, it would cast it for Donald Trump over Hillary Clinton. And in part three, Shihao Han seeks to explain why Trump is so popular in China after his stunning victory on November 7.
Perhaps Chinese schadenfreude over Trump’s defeat of Clinton will be short lived as his political appointments confirm his intent to challenge the two central pillars of the bilateral relationship since normalization of diplomatic ties in 1979: economic engagement and the ‘One-China policy.’ No one yet knows what Trump’s China policy will be, perhaps not even the President-elect himself. But path-breaking research done by GPS Acting Dean Gordon Hanson and his co-authors sheds light on why such Trump’s populist economic agenda appealed to so many American voters. Hanson et al argue that the ‘China trade shock’ that followed China’s accession to the World Trade Organization (WTO) had a concentrated impact on labor markets where manufacturers competed against Chinese imports. These areas hard-hit by trade may have cost Hillary Clinton the election.
2016 also marked the 15th-anniversary of China’s accession to the WTO. While China’s track record with compliance has been decidedly mixed, a trade war with China is unlikely to bring back these lost jobs. Nonetheless, the political appeal of protectionism will likely ensure that trade will remain a contentious issue in 2017. China has already lodged a complaint with the WTO over U.S. and EU unwillingness to grant it ‘market economy status’ as promised in 2001. If conflict over trade intensifies, cooperation on other dimensions of the relationship will likely stall. The 2016 China Focus Essay Contest asked participants to identify “the greatest missed opportunity in U.S.-China relations over the past decade.” Angela Luh’s winning essay advocated for the quick conclusion of a Bilateral Investment Treaty (BIT) as a vehicle for cooperation on energy and environmental policy. These prospects now look as dim as the hazy future of U.S.-China climate change cooperation.
Looming Security Challenges in the South China Sea and Korean Peninsula
Regardless of the policy priorities of the Trump administration, security challenges posed by territorial disputes in the South China Sea and the North Korean nuclear program will loom larger in 2017. In 2016, China’s land reclamation efforts and U.S. freedom of navigation operations (FONOPs) escalated tensions between the two nations. In July, an international tribunal ruled against China’s claims to historic rights over most of the South China Sea in a landmark case brought by the Philippines. Beijing rejected the tribunal decision outright while the Obama administration stressed the binding nature of the ruling. In December, a CSIS report provided evidence that China had installed anti-aircraft weapons on islands it reclaimed in the Spratlys despite an earlier pledge by President Xi Jinping to the contrary.
Policymakers in the U.S. remain divided about the proper response to Chinese actions in the South China Sea. The Obama administration has faced criticism from opposition leaders and publicly clashed with the Navy over its reluctance to more aggressively push back against Chinese island construction with more FONOPs. During 21st Century China Center (21CC)’s fourth annual Robert F. Ellsworth Memorial Lecture, Ambassador Stapleton Roy dismissed the notion that China is seeking to dominate the region and push the U.S. out of Asia and cautioned against risking war over trivial rocks in the South China Sea. On the 21CC’s newly launched China 21 podcast, Professor Susan Shirk debated Ambassador Roy over the issue. At another discussion of the South China Sea at GPS, Professor Shirk was joined by Professors Stephan Haggard and Donald Emerson to discuss the economic and political consequences these disputes have on Southeast Asian nations and the global economy (see below).
The election of Rodrigo Duterte in the Philippines introduces yet another element into a complex policy challenge. President Duterte declared in December that “We will never be ready to fight with China. It is you [U.S.] who is egging a fight there,“ seemingly turning his back on years of American military and economic aid. Yet many in Beijing are cautious about his rapprochement with China. Shihao Han examines why the U.S. should not be too pessimistic about the ‘separation’ of the Philippines.
North Korea’s nuclear program poses a more serious threat to regional security and another source of tension in the U.S.-China relationship. Pyongyang launched a satellite in February which was widely condemned as a ballistic missile test. This provoked a fresh round of UNSC sanctions as well as missile defense discussions between Washington and Seoul. In July, South Korea and the United States announced that they would deploy the Terminal High-Altitude Area Defense (THAAD) system in South Korea to counter the threat of North Korean ballistic missiles. Beijing vigorously opposed the deployment of THAAD and believes its true purpose is to contain China by tracking missiles launched from China rather than North Korea.
At the same time, China supported tougher UNSC sanctions on North Korea in November. UNSC Resolution 2321 has been called the strongest ever and contains a provision to limit North Korea coal exports to China. Professor Stephan Haggard provides a detailed assessment of these new sanctions and the prospects for Chinese compliance in on his PIIE blog. Initial news reports suggest that China intends to comply with the new round of sanctions and has even filed charges against a major Chinese company involved in trade with North Korea for helping Pyongyang evade sanctions. The other winner of the 2016 China Focus Essay Contest by Sara Lee identified North Korea policy as the biggest missed opportunity for U.S.-China cooperation.
What Comes After the ‘New Normal’?
At the 19th Party Congress in 2017, China will undergo a much anticipated leadership transition, the first of the Xi Jinping era. As most of the members of the Politburo Standing Committee (PSC) reach retirement age at 68, a new generation of younger leaders is expected to take their place. Chutian Zhou provides a detailed account of this process as well as his predictions for the likely candidates to be promoted to the PSC. Yet there are signs of growing political and economic discord on the eve of this all-important event.
Many China watchers believe that Xi Jinping, who was declared the ‘core’ leader in October, will break with the tradition of collective leadership, scrap the retirement age rule, and directly pick his successor. In our “three questions with…” interview with Cheng Li, Professor Li challenges this view and argues that Xi is much more constrained in his exercise of power and the CCP system much more resilient than the prevailing narrative. Professor Victor Shih’s work also shows that Mr. Xi’s faction accounts for only 6% of the Central Committee, the powerful 205 member body that must approve his policies. While some have speculated that Mr. Xi’s ally and anti-corruption czar, Wang Qishan, may stay on in the PSC beyond his retirement age, others have pointed out the emergence of a Wang faction that may eventually pose a threat to Mr. Xi.
Amidst the backroom political intrigue surrounding leadership transition, the Chinese economy continued to slowdown in 2016. Overcapacity in industries such as steel and coal amidst a global glut in demand have produced layoffs and labor unrest. To deal with these challenges Mr. Xi has implemented a round of “supply-side structural reform,” the purpose of which, according to Professor Barry Naughton, is to curtail rather than encourage supply by cutting excess capacity in inefficient industries. At the same time, China’s financial system has been strained by increasing capital outflows, as Professor Victor Shih explains, and the government has adopted stricter guidelines for overseas investments. In December, China’s foreign reserves have been reduced to $1 trillion from a high of $4 trillion in June 2014. Meanwhile, China’s corporate debt, which has risen to 160 percent of GDP, has become a growing source of concern for regulators. These factors have combined to depreciate the yuan to its weakest level against the dollar since the Global Financial Crisis but have not done much to boost exports.
One source of optimism is that policymakers in Beijing have continued to forge ahead with reforms designed to transform the Chinese economy from an export-and-investment growth model to one that is driven by domestic consumption and innovation. Beijing has also redoubled its efforts to confront environmental degradation and combat climate change, ratifying the Paris Climate agreement to reduce CO2 emissions in September. China’s 13th Five Year Plan (十三五) was put into effect in 2016, which also contains an impressive number of ‘hard targets’ focused on the environment, which I discuss with Debbi Seligsohn in another China 21 podcast episode. The 十三五 placed major emphasis on innovation, increasing the budget for scientific research, but bottom-up innovation from a burgeoning start-up scene also grabbed headlines in 2016 (most notably Didi and Tencent). Thomas Murphey discussed the future of Chinese cars and ride sharing with Michael Dunne, a China watcher and industry expert. At a panel discussion, James Fallows and a number of GPS experts assessed the evolving state of Chinese innovation and its potential impact on the U.S.
Though China placed third in the medal count at the Rio Olympics behind the United States and Great Britain, it muddled through 2016 arguably in better shape than both an EU beset by refugees and Brexit and politically divided U.S. led by the polarizing and inexperienced Donald Trump. 2017 will test the resiliency of the Chinese system both politically and economically. The stakes will be much higher than a few gold medals.