China predictions for 2011

A critical year for world trade

Are we in the early stages of a global trade war, or the start of a global economic rebalancing process that could put the world on track for more sustainable growth after 2015?

China will have a major role in determining the answer to that question in 2011

As the American economy fails to revitalise, China can expect to come under intense pressure to appreciate its currency, the Renminbi. If legislation passes in the US Sentate, it could also face punitive US trade tariffs and a growing backlash from a Europe in the grip of a sovereign debt crisis.

The actions of the developed-world economies - and China’s responses to them - could either hasten the onset of a global trade war or force a faster-than-expected rebalancing on China that could put the world economy on a sounder footing.

Succession politics

China’s unpredictable and opaque political system will come under strain this year as Xi Jinping, the man identified in 2010 as likely to succeed Hu Jintao in 2012, tries to ensure that he makes a smooth transition to the promised seat of power.

As the succession battle plays out behind the closed doors, many analysts expect to see a growing ‘risk aversion’ among China leaders which will translate to tougher social controls at home and, worryingly in such a critical year for world trade, a crowd-pleasing toughness abroad.

Economy

In March all eyes will be on the unveiling of a new Five Year Plan to see how far and how quickly China is prepared to take steps to stimulate growth at home and wean itself off intensive capital investment and exports as its main engine of growth.

Policy makers will be hoping to keep China’s economy on course for a soft-landing, raising interest rates and banks’ capital ratio requirements while gradually squeezing new loan growth as monetary policy shifts from its “relatively loose” stance of the last two years to “prudent”.

North Korea

As North Korea’s only international ally of substance, China will face a testing year trying to stabilise an increasingly tense Korean peninsula after a year in which Pyongyang sunk a South Korean warship in March, killing 46 and shelled a South Korean island in November, killing four.

China will continue to push for a resumption of the Six Party nuclear disarmament talks, but has so far seen its overtures rejected by America, South Korea and Japan raising the risk – China argues – of further provocations by Pyongyang.

America is pressing China, in its capacity as back-stop to North Korea’s economy, to urge Pyongyang not to take its belligerence to the next level. As North Korea undergoes a succession year of its own, it is far from clear if Beijing has diplomatic sway to bring Pyongyang to heel, or if it does have sufficient influence, whether it is prepared to use it.

A cause for Party celebrations?

The Chinese Communist Party celebrates the 90th anniversary of its founding in Shanghai in May 1921, an event which will be commemorated with the release of epic film The Founding of a Party from the state-run China Film Group and a raft of smaller events designed to boost faith and loyalty to China’s one-party state.

Expect rather less enthusiastic celebrations for the 100th anniversary of China’s 1911 Republican Revolution, which marked the unseating of another autocratic ruling clique – the despotic Qing Dynasty – after 260 years in power. Revolutions - past, present and future – tend to make China’s rulers nervous, although after just 61 years in power the Communist Party will feel that its own dynasty has a while to run yet.