Change at Home
Domestically, China is embarking on a year that will carry enormous significance for the future trajectory of its political and economic development, with a sweeping reshuffle of its top leadership planned at the 19th Party Congress in the autumn. The quinquennial political gathering will mark the beginning of President Xi Jinping’s second five-year term at the party-state’s helm and approve one of the largest elite turnovers in decades, with five of the seven members of the Politburo Standing Committee, the apex of political power in China, expected to step down due to an unofficial retirement age of 68.
The extensive reapportioning of senior political slots will also usher in a new generation of leaders, possibly including the eventual successors to the presidency and premiership.
However, some China watchers have speculated the unveiling of the heirs apparent may depend on whether President Xi uses his core leader status to change the leadership succession rules and decide to stay on as party leader beyond 2022 when his second term expires.
While the topmost changeovers will monopolize most media coverage, international businesses should be aware the political shake-up will occur at all levels of the party-state apparatus across China. Executives should prepare for the possibility of needing to build relationships with new government stakeholders following rearrangements of personnel.
Tangling with Trump
As the dust settles after President Donald Trump’s shock election, the risk of an early cataclysm besetting bilateral relations appears to have been lowered significantly after the new administration moved to defuse rising tensions and extended several olive branches to Beijing during its initial weeks in office.
However, it remains to be seen whether Mr. Trump’s seemingly softening approach towards China will endure as he makes the difficult transition from campaigning to governing in the early months of his presidency. The translation of his previous broadsides launched against Beijing into actual policy dictated from the Oval Office would inevitably escalate bilateral frictions, setting the stage for a period defined by excessive volatility and potentially massive disruptions in U.S.-China relations. Looking ahead, international businesses should be mindful of the prospect of more adversarial relations between the world’s two largest economies spooking up yet another black swan in the Year of the Rooster.
Populism and Brexit in Europe
For China, it’s difficult to predict exactly what impact Brexit might have. Looking at the bright side from Beijing’s perspective, Brexit may impel the U.K. to become even more outward-looking and pivot its strategic gaze beyond Europe, paving the way for China to emerge as a natural choice for a new global partner. Furthermore, Brexit’s dramatic fracturing of the European integration project could yield significant geostrategic gains to China, with a weakened EU, diminished by disunity and lacking a strong voice on the world stage, creating greater space for China to pursue its own international agenda.
However, the Brexit fallout could rain down adverse consequences for China as well. Together with Trump’s election, the EU referendum’s outcome indelibly marked off just how high the tide of anti-globalization has risen around the world. With the trading block absorbing close to 20% of China’s exports, the impact on the Chinese economy of Europe adopting more restrictive, anti-trade regimes could be considerable. Consequently, China stands to lose enormously should Europe and the U.S. beat a sudden retreat from their longstanding commitment to free trade and open economies.
The Year of the Rooster looks to be a period of heightened uncertainty and potential volatility for China, with the Chinese government preparing for a large turnover in its top leadership and the impacts of the Trump presidency and Brexit still to be seen. International businesses with China-related interests should carefully monitor developments and prepare for the prospect of any politically or economically-induced market disruptions.