Dec 30, 2017 - World

China: 7 big things to watch in 2018

Chinese President Xi Jinping. Photo: Feng Li / Getty Images

The U.S. relationship with China will be the world's most consequential in 2018. The two big issues, straight from President Trump:

  1. "China's hurting us very badly on trade, but I have been soft on China because the only thing more important to me than trade is war. O.K.?" he said in an interview with the New York Times.
  2. "Caught RED HANDED - very disappointed that China is allowing oil to go into North Korea. There will never be a friendly solution to the North Korea problem if this continues to happen!" he wrote on Twitter.

Go deeper: Here are the 7 things to watch with China, from the rise of the Communist Party and its absolute leader Xi Jinping, to the prospects for war with North Korea and China's growing influence in the world.

1. Xi Jinping is determined to reinsert the Chinese Communist Party (CCP) into all aspects of life in China. Xi views restrengthening of the Party as key to preventing a USSR-style collapse, and to achieving the "great rejuvenation of the Chinese nation", as he has said repeatedly.

  • Why it matters: All of China's domestic and foreign policies need to be viewed through the lens of the the CCP and its goals. The CCP is far more than a simple political party, and its interests and goals are often hostile to those of its neighbors and of Western countries.

2. The recent Party Congress cemented Xi as the undisputed leader of China, the "Chairman of everything" as the country's leadership shifted away from 2 decades of "collective leadership" and instead called to "safeguard Xi's position at the core of the CPC Central Committee and the whole Party."

  • Why it matters: Xi's power is far from unfettered but he is more of the "decider" than any single Chinese leader in decades. That can be positive for moving quickly and forcefully, but the downside risks are significant if subordinates tend towards sycophancy instead of real policy debate.

3. Expect much of China's 2018 political agenda to revolve around 3 issues: controlling financial risks, reducing poverty, and curtailing pollution. Beijing recognizes it has a massive debt problem and there will be significant efforts to reduce and manage riskier debt. Poverty alleviation is seen as key to maintaining support for the Communist Party and achieving the "great rejuvenation." Chinese leadership has recognized that environmental degradation may pose the greatest risk to the Party's continued rule, and though the ongoing crackdown on pollution is more real than it has ever been, the incentives to pollute are still so great and the multi-decade damage so massive that progress will be halting at best.

  • Why it matters: By declaring these "three tough battles" the government has announced what the overarching economic priorities for 2018 will be.
  • Go deeper: At the 19th Party Congress the CCP changed the "principal contradiction", an overarching guide in a Marxist-Leninist worldview, from "ever-growing material and cultural needs of the people versus backward social production" set in 1981 to "between unbalanced and inadequate development and the people's ever-growing needs for a better life". This is not just empty rhetoric and is a clear indicator that Xi and the Party are serious about changing the PRC's economic growth model.

4. The Party has embraced technology, and specifically big data and artificial intelligence, as a key part of the Chinese government's blueprint for becoming a superpower while maintaining Communist Party control. China has huge data sets generated by almost a billion Internet users, few legal restrictions on the use of that data, a rapidly growing pool of talented Chinese AI engineers and extremely favorable government policies, including significant financial support.

  • Why it matters: The Party sees this next technology revolution as both a way to leapfrog ahead of other nations in its quest to become the leading technology superpower of the 21st century and to enhance its control over the population.

5. President Trump's approach to China is about to change for several reasons: the administration's National Security Strategy very clearly reframed the U.S. government's view of China in a confrontational way, the president believes China is still not doing enough on North Korea, and the administration's "America First" trade contingent is ascendant. Several trade actions are in the planning stages and they will likely hit soon.

  • Why it matters: Trump has been consistent for decades in his view that China is taking advantage of the U.S. but has held back because of North Korea. As in many other issues we should expect him to revert to his original views, which means far more friction in the U.S,-China relationship is ahead.

6. If the U.S. decides China is not doing enough on North Korea, as the recent tweet from President Trump suggests, a likely next step is U.S. sanctions against more important Chinese individuals and firms, including systemically important financial institutions. Such sanctions would likely lead Beijing to reevaluate its cooperation with the U.S.

  • Why it matters: President Trump has made North Korea the defining foreign policy challenge of his presidency. The status quo or even a "freeze" of the North Korean nuclear program would be a failure given his rhetoric, so either he ends up looking like a paper tiger or military action becomes more likely next year.

7. China's more assertive foreign policy will continue as the country grows in confidence and power, and as it sees increasing opportunities to capitalize on the vacuum created by Trump's "America First" policies. Beijing's efforts are not welcomed by all but in the absence of American leadership, especially around China's periphery, targeted countries will increasingly gravitate towards China. China will continue to grow influence across the developing, especially in Asia and Central Asia

  • Why it matters: There is already Western pushback against Chinese influence, particularly in Australia and New Zealand, and there are efforts underway in the U.S. and EU to further regulate Chinese investment, media and lobbying efforts.

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