China

Politics:

• Analysis

  China politics: The song of Song

  The song of Song

  The shot that killed Song Jiaoren was not heard around the world. But it might have changed Chinese history

  AT 10.40pm on March 20th 1913 a young man who represented one possible future for China stood on the platform at Shanghai railway station, waiting with friends to board a train to Beijing. Song Jiaoren--30 years old, sporting a Western suit and a wisp of a moustache--had just brilliantly led his new political party, the Nationalists, to overwhelming success in parliamentary elections, the country's first attempt at democracy after two millennia of imperial rule. He was in line to become China's first democratically elected prime minister, and to help draft a new constitution for the Republic of China.

  Song (above, centre) was exultant. A fortune-teller had told him--when he was a fugitive in Japan, plotting a violent end to the Qing dynasty--that he would serve as prime minister for 30 peaceful years. With his Jeffersonian ideals and admiration for Britain's Parliament, he was ready to change his country's fate.

  But an assassin's bullet prevented him from trying. Armed with a Browning revolver, an unemployed ex-soldier in black military garb fired a single slug into his back and fled. Song was taken to a nearby hospital, where a bullet was removed from his abdomen. He knew death was near, and in the last political act of his life he dictated a telegram to his chief adversary, President Yuan Shikai (pictured bottom right): "I die with deep regret. I humbly hope that your Excellency will champion honesty, propagate justice, and promote democracy..."

  Song died on March 22nd. China's best chance of democracy may have died with him.

  Who ordered his death? The official inquiry eventually ran cold. The ex-soldier who pulled the trigger and the men identified as hiring him, including the acting prime minister in Yuan's cabinet, all mysteriously died or went missing within a year. Two were poisoned, another slain by a pair of swordsmen aboard a train.

  There was no shortage of people who might have wished Song gone. Ardent and self-assured, he had made many enemies both in the opposition and his own party. Liang Qichao (pictured left), the pre-eminent Chinese intellectual of the era, an erstwhile monarchist and at that moment a close ally of Yuan's, was forced to deny a rumour that he was behind the assassination (according to sources dug up by John Delury, a historian). The Nationalist Party's co-founder, Sun Yat-sen (top right), had been Song's bitter rival for years; he opportunistically seized on the killing to foment a failed second revolution in a bid to regain control of the party.

  The man whom most historians blame, and who benefited most directly from the hit, was the recipient of Song's dying plea for democracy. President Yuan had no interest in granting that wish. A career soldier who had served the Qing government and negotiated its abdication (to him), Yuan is the cartoon villain of this tale, with the bushy moustache, round open face and slightly overfed build of an indulged monarch.

  He was also canny, ruthless and megalomaniacal. Yuan did not want a strong prime minister, nor did he want the Nationalist Party to write a constitution that would limit his own power. He most certainly did not want democracy--and snuffed it out. In 1915 he tried to restore imperial rule and have himself made emperor. His death in 1916 left a divided country, fought over by warlords and bandits.

  But what if Song had lived? How close did China come to forging a democracy 100 years ago? Was Song's dream of a liberal revolution doomed? How far did an assassin's bullet change China's destiny--just as the killing of Archduke Franz Ferdinand in Sarajevo soon afterwards changed Europe's?

  Exile in Tokyo

  It is often said, even by some of the harshest critics of Communist rule, that China is not ready for democracy. Not quite yet. This was already a familiar refrain in Song's lifetime. The scholar Liang visited America in 1903, looked scornfully at the "disorderly" life of the Chinese in San Francisco, and reached a harsh conclusion: "If we were to adopt a democratic system of government now, it would be nothing less than national suicide," he wrote. "The Chinese people can only be governed autocratically; they cannot enjoy freedom." Perhaps after 50 years, he suggested, "we can give them the books of [Jean-Jacques] Rousseau and tell them about the deeds of [George] Washington."

  The Chinese people, long yoked by Confucian tradition and insulated from Western influences, may have been unprepared for the radical terminology of liberty. But it arrived nevertheless. Rousseau's "Social Contract", an ideological precursor of the French revolution, appeared in translation in 1898; young Chinese were beginning to read about the deeds of Washington, too. Yan Fu, the era's most important translator of Western thought, introduced Chinese readers to Darwin's theory of natural selection in 1898, to John Stuart Mill's "On Liberty" in 1899, Adam Smith's "The Wealth of Nations" the following year, and Montesquieu's "The Spirit of Laws"--which, more than a century earlier, had influenced the drafters of the American constitution--in 1905.

  Until then China had been largely ignorant of three centuries of new thinking by the "barbarians" of the West. In the case of industrial technology, the effects of this disregard were parlous. The Qing emperor Qianlong had turned away the British emissary, Lord Macartney, in 1793, saying he had no use for British products, "ingenious" as they might be. Britain came later with modern ships and weapons instead, to force China to buy opium. Together the Western powers (and, in 1895, Japan) began carving up China and raiding its treasury with a series of unfair treaties.

  By the end of the 19th century these humiliations had given rise to nationalism and anti-foreign sentiment that posed a threat to the Qing rulers, who as Manchus were already considered foreign by Han Chinese. In 1898 the Qing began reforming the hopelessly antiquated Confucian education system, allowing the introduction of some "useful" Western concepts. Peasants and landed gentry alike were forming political societies, some secretive, some subversive, some progressive, including several devoted to ending the practice of binding women's feet. The telegraph was coming into use, bringing news of international events; meanwhile, some imperial edicts were still being delivered by horse post.

  The contrast between a slow-hoofed regime and a world hurtling into modernity could be felt in rural Hunan province, in China's interior, where Song was a boy in the 1890s. He clamoured to hear of current events, especially military matters, and he enjoyed playing at war. Wu Xiangxiang, a biographer of Song, writes that he would call together the children of the neighbourhood in the hills around his village and, flag in hand, climb atop a rock and take charge. Song, like many of his generation, found bitter confirmation of Manchu weakness in the news of China's embarrassing defeat to Japan in 1895. Then 13 years old, he ran off from his family "to wail under a Kusamaki tree".

  He excelled at school and earned a degree that entitled him and his family to a relatively comfortable life in the Confucian scholar-gentry class. But he was attracted to Western teachings, and, unusually, he was encouraged even by his family to stray somewhat from his Confucian obligation to serve his kin. Kit Siong Liew, another biographer of Song, writes that his mother told him to "work toward the interests of all people under heaven". At a provincial academy in neighbouring Hubei province, Mr Liew writes, classmates said Song "revealed his ambition to change and purify the world," and talked of plots and revolution.

  He did not have to wait long for an opportunity. In 1904, at the age of 22, he fell in with a revolutionary group's plan to bomb a municipal building in Changsha, capital of Hunan, and prepared to foment rebellion in his home province. But the plot was discovered--failed revolutionary gambits were to become a regular feature of the decade--and Song was forced into hiding. He fled to Tokyo, the destination of thousands of young Chinese reformers and radicals, taking advantage of another significant Qing reform at the turn of the century: allowing Chinese to study in Japan.

  His nearly six years in Japan transformed Song from a disciple of revolution to a leader. Japan's Meiji Restoration had introduced Enlightenment thinking and constitutional government to that society decades earlier. It was there that substantial numbers of Chinese students learned the language of democracy (the Chinese words for "democracy" and "freedom" were created by Japanese writers using Chinese characters). Tokyo became a testing ground for Chinese political debate; Liang and Sun--and Song--first fought their proxy wars of ideas in Chinese-language newspapers there. It was not long before the new rhetoric became seditious, with powerful echoes of America's Declaration of Independence and Bill of Rights.

  Song would become the constitutional brain of the revolution. In 1905 he met Sun in Tokyo, becoming a founding member of the Revolutionary Alliance (a forerunner of the Nationalist Party), and took on the roles of political newspaperman, organiser, fund-raiser and strategist. But it was as a student of post-revolutionary governments that he distinguished himself. He became immersed in the constitutions of the world by translating several--including the American and French--to help pay the bills. He was persistently short of money and took succour in booze and opium.

  But he was clear-eyed enough to distinguish between the documents of the great liberal democracies and those of autocracies such as Prussia and Russia, which he also translated for a visiting Qing delegation in 1906. With her realm teetering, the Empress Dowager Cixi had taken a belated liking to constitutional monarchy. Song's verdict on the Qing was laced with an exasperation that still resonates a century later: "Those of us who hope day and night for the Manchu government to effect peaceful reform, may they not now cease hoping?"

  Song was convinced that the Qing dynasty would fall, and that if the revolutionaries were not prepared, the next government would be worse. He was prescient on both counts. Despite serious rifts among the rebels--including between Sun and Song--and a string of blunders in their plots, the revolution was successful virtually by accident. A prematurely exploded bomb in the city of Wuchang in Hubei province sparked the Xinhai revolution of October 1911. A series of provinces declared independence, and on January 1st 1912 a republic was formed, with Sun as president; Song set about designing the institutions of a new democracy.

  But it was a weak revolution. Many provinces maintained back channels to Beijing, where Yuan, leader of a well-organised army, negotiated the abdication of the Manchus and his own ascension to the presidency in Sun's place.

  Not yet 30 years old, Song believed that the institutions he had crafted, based on the principles of devout republicans such as Jefferson and Madison, could rein in a strong man. But this was not the American revolution, and Yuan was no George Washington. While the Republic prepared for its first elections at the end of 1912 Yuan ran roughshod over the new government.

  A taste of democracy

  Song put his remaining faith in the polls. In the elections of December 1912 to early 1913 more than 10% of the Chinese population would be eligible to cast votes, an elite but still large group of 40m male taxpayers who owned some property and had a primary-school education. (Women had not won the right to vote; one suffragist slapped Song in the face for not taking up their cause.) China's first real democratic campaign had begun.

  What did this first go at democracy look like? Partisans roughed up opposing candidates and activists, carried guns near polling stations to intimidate voters, bought votes with cash, meals and prostitutes (some lamented selling too early, as prices went up closer to election day), and stuffed ballot boxes. At least one victorious candidate was falsely accused of being an opium-taker.

  In a word, it looked like democracy. Some historians discount these reports as scattered abuses in a fairly clean election. In any case, Song could not be thought naive: his Nationalists were accused of the preponderance of the election shenanigans, and they won in a rout, in effect taking half the seats in the legislature.

  Jonathan Spence, a historian, writes that Liang, who had come back to China to help organise a pro-Yuan party, took this defeat for the authoritarians terribly, writing to his daughter just two days before Song's assassination, "What can one do with a society like this one? I'm really sorry I ever returned." Disgusted, and believing his opponents had cheated, Liang would temporarily throw in his lot with Yuan's rule, even as evidence suggested the president had assassinated his chief political rival. Ever the operator, Yuan worked to reverse the Nationalist victory at the polls by buying off elected officials, later banning the party altogether.

  Song, meanwhile, was rumoured to have turned down a huge bribe from Yuan. He spent his last days making victory speeches around the country, attacking the would-be dictator and promising to curb the power of the presidency. He may have been too ready to believe a fortune-teller's prophesy.

  Might Song have saved the Republic by living? If he had not been assassinated, some scholars believe, Sun would not have attempted his second revolution, and Yuan would have continued as an incorrigible president with too much power--a disappointing outcome, but not as catastrophic as the country's slide into anarchy proved to be. In this alternative history, China might have followed the path that Taiwan later did, with a militarised, authoritarian government slowly evolving into a liberal republic.

  The crucial question was whether Yuan could ever have been persuaded to tolerate Song. Could Liang have overcome his own bitterness about the election result to negotiate a peace between them? Could Song have patiently worked to build a government that would live longer than its president?

  Mao's lesson

  China will never know. But without Song, the Republic was doomed. The Chinese people had taken enthusiastically to their new power to elect their leaders, but Yuan would disenfranchise them; they had begun to devour a thriving popular press, unleashed from imperial censorship, but Yuan would bring back the censors. His insatiable appetite for power alienated some of his old allies, including Liang, and his final bid to restore the monarchy was widely unpopular. But he did manage to manipulate an American constitutional adviser, Frank Goodnow, into endorsing his imperial ambitions. Goodnow had arrived in Beijing six weeks after Song's murder, in May 1913, and saw only turmoil. He too declared the Chinese people unready for democracy.

  There were other turning points to come that might have sealed democracy's fate, whether or not Song had lived. The Japanese invasion and occupation of China would have wrought havoc in the country under any government, creating an opportunity for, among others, Communist rebels. Japanese writers had given the Chinese language not only the words "democracy" and "freedom", but also another Western concept, "socialism".

  Eventually Chinese communists, led by Mao Zedong--another young revolutionary from Hunan, born 11 years after Song--would win a civil war and, in 1949, "liberate" China. The chaos of the Republic had played into Mao's belief that dissent must be mercilessly repressed. Nearly three decades of his totalitarian rule followed. This year, as the Communist Party's leaders again installed their own successors without public input, they declared, not for the first time, that "Western" democracy is not appropriate for the Chinese people.

  December 22, 2012

• Background

  China: Key figures

  Hu Jintao

  China's president, and also general secretary of the Chinese Communist Party (CCP), Mr Hu has disappointed those who hoped for bolder political reform. Conservative by instinct, he sees greater openness and accountability as a means of improving the quality of governance in China rather than as an initial move towards democracy. Under Mr Hu's leadership, social and environmental concerns have risen up the agenda, in line with his ideology of "scientific development". Mr Hu's policymaking approach is normally cautious. The large number of protégés that Mr Hu has installed in important posts leave him well positioned to maintain his influence on Chinese politics from behind the scenes after 2013.

  Wen Jiabao

  The premier since 2003, Mr Wen appears to work well with Mr Hu and is the human face of the latter's "harmonious society" policy agenda. Mr Wen is the senior leader with the most frequent exposure to international media. He has described reform as an urgent task, and has repeatedly warned of the threats to future economic growth and social stability posed by political inertia. However, he has struggled to garner wider support within the party on these issues, and has consequently failed to deliver meaningful changes during his period in power.

  Xi Jinping

  China's vice-president since 2008, Mr Xi is a former governor of Fujian province and ex-party secretary of Zhejiang province. As the son of a former high-ranking official, he belongs to the "princeling" wing of the CCP. In 2007 he was appointed to the party's politburo standing committee (PSC, China's main policymaking body), assuming the role of heir-apparent to Mr Hu. He has remained discreet about his political views, but, once his promotion has been secured, he will make efforts to set out a policy agenda that subtly distinguishes him from his predecessors. His experience working in China's trade-oriented eastern provinces, where the private sector is traditionally strong, suggests that he will be supportive of further economic liberalisation. Mr Xi is thought to be less influenced by consensus attitudes than Mr Hu, and his privileged family background has given him an extensive personal network that may help him to implement decisions.

  Li Keqiang

  Mr Li, a former party secretary of Henan and Liaoning provinces, was elected to the PSC in 2007 and became China's executive vice-premier in 2008. Having failed in his bid to be chosen as heir-apparent to Mr Hu, Mr Li is now being lined up to take over as premier from March 2013, in an appointment that will bring with it responsibility for macroeconomic policy. Mr Li has a reputation as a reformer and has shown a deep interest in a range of social issues, such as affordable housing and public healthcare. However, his reputation remains tainted by the legacy of official efforts to cover up a scandal in Henan province involving the infection of blood donors with HIV, which took place while he was provincial party secretary during 2002-04.

  Wang Qishan

  Mr Wang, a princeling, served as mayor of China's capital, Beijing, before his elevation in 2008 to the position of vice-premier with responsibility for financial issues. A member of the politburo, he is expected to be promoted to the PSC as part of the next leadership transition. He is likely to play a leading role in implementing financial sector reforms and overseeing economic relations with China's main trading partners.

  Li Yuanchao

  The head of the Central Organisation Department (the body responsible for managing China's bureaucracy) and an ally of Mr Hu, Mr Li has constructed a valuable network of connections during his time in his current position. He previously served as party secretary for Jiangsu province, having also been party leader of the provincial capital, Nanjing. Mr Li is on course to become a member of the PSC at the next reshuffle, and is likely to become responsible for internal party discipline.

  April 27, 2012

• Structure

  China: Political structure

  Official name

  People's Republic of China

  Form of government

  One-party rule by the Chinese Communist Party (CCP)

  The executive

  The State Council, whose membership is approved by the legislature. State Council members, including the premier, may serve no more than two consecutive five-year terms

  Head of state

  A president and a vice-president are approved by the legislature for a maximum of two consecutive five-year terms

  National legislature

  The unicameral National People's Congress (NPC), whose 2,989 delegates are selected by provinces, municipalities, autonomous regions and the armed forces. The NPC approves the president and members of the State Council, as well as the membership of the standing committee of the NPC, which meets when the NPC is not in session. All arms of the legislature and the executive sit for five-year terms

  Regional assemblies and administrations

  There are 22 provinces, four municipalities directly under central government control and five autonomous regions. These elect local people's congresses and are administered by people's governments

  National elections

  The current government line-up was approved at the NPC meeting in 2008. A new party leadership was unveiled at the 18th national congress of the CCP in November 2012. The new government line-up will be announced in March 2013 at the NPC, when Xi Jinping and Li Keqiang are expected to take over from Hu Jintao and Wen Jiabao as president and premier respectively

  National government

  The politburo (political bureau) of the CCP decides on policy and controls all administrative, legal and executive appointments; the seven-member politburo standing committee is the focus of power

  Main political organisation

  The CCP, of which Mr Xi is the general secretary

  Politburo standing committee members

  Xi Jinping

  Li Keqiang

  Zhang Dejiang

  Yu Zhengsheng

  Liu Yunshan

  Wang Qishan

  Zhang Gaoli

  Heads of selected state ministries and commissions

  President: Hu Jintao

  Vice-president: Xi Jinping

  Premier: Wen Jiabao

  Vice-premiers:

   Li Keqiang

   Hui Liangyu

   Zhang Dejiang

   Wang Qishan

  Commerce: Chen Deming

  Finance: Xie Xuren

  Foreign affairs: Yang Jiechi

  National Development & Reform Commission: Zhang Ping

  Central bank governor

  Zhou Xiaochuan

  December 01, 2012

• Outlook

  China: Key developments

  Outlook for 2013-17

  • The handover of power to a younger generation of leaders, which began at the November 2012 congress of the ruling Chinese Communist Party (CCP), is likely to lead to some shifts in government policy in the forecast period.
  • The elevation of a set of relatively conservative figures to the politburo standing committee (PSC) at the party congress nevertheless suggests that the prospects for political liberalisation in 2013-17 have receded.
  • Efforts to raise incomes, and thus spending, among the less well off will form part of the government's efforts to expand the role of consumption in driving economic growth in the forecast period.
  • Monetary policy will return to a tightening stance in the second half of 2013 as inflation and economic growth pick up. The authorities will gradually liberalise interest rates in 2013-17, and this will result in rates drifting higher.
  • Economic expansion will average 7.6% a year in 2013-17, with net exports subtracting from overall growth for most of the period. Private consumption will overtake investment as the main driver of growth in the next five years.
  • The current account will move from a surplus equivalent to 1.9% of GDP in 2013 to a deficit of 0.9% in 2017. China will become less cost-competitive as wages and prices rise.

  Review

  • Xi Jinping became China's most senior politician in November, succeeding Hu Jintao as the head of the CCP at the party congress. Li Keqiang, heir-apparent to the premier, Wen Jiabao, is ranked second within the CCP hierarchy.
  • Aside from Mr Xi and Mr Li, the seven-member PSC of the CPP was largely filled with conservative figures. Two much-touted reformists, Wang Yang and Li Yuanchao, failed to make the committee.
  • Wang Qishan was appointed to head the party's anti-corruption body, but his low rank in the PSC and the way in which he was sidelined from his core expertise in financial affairs suggests that he lost out in the promotion process.
  • Consumer price inflation cooled to 1.7% year on year in October, from 1.9% in September, according to the National Bureau of Statistics.
  • The pace of industrial output growth accelerated for the second month in a row in October, to 9.6%, suggesting that China's economic slowdown is over.
  • China's merchandise exports rose by 11.6% year on year in October. The unexpectedly strong performance resulted in a monthly trade surplus of US$32bn, the largest since January 2009.

  December 01, 2012

Economy:

• Background

  China: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	1,320.7	Population growth	0.6
  GDP (US$ bn; market exchange rate)	7,211.9b	Real GDP growth	10.5
  GDP (US$ bn; purchasing power parity)	11,452.8	Real domestic demand growth	11.4
  GDP per head (US$; market exchange rate)	5,461	Inflation	3.7
  GDP per head (US$; purchasing power parity)	8,672	Current-account balance (% of GDP)	9.2
  Exchange rate (av) Rmb:US$	6.46b	FDI inflows (% of GDP)	4.5
  a Economist Intelligence Unit estimates. b Actual.

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  Background: The People's Republic of China was founded in 1949 by the Chinese Communist Party (CCP). The CCP chairman, Mao Zedong, then led the country for nearly three decades. After coming to power in 1978, two years after Mao's death, Deng Xiaoping introduced economic reforms. From 1989 to 2002 Jiang Zemin presided over a more collective leadership, a trend strengthened under his successor, Hu Jintao. The transition to a new generation of leaders, headed by Xi Jinping, began in November 2012.

  Political structure: The CCP dominates the government. Mr Xi is general secretary of the CCP and chairman of the Central Military Commission, which controls the armed forces. Wen Jiabao leads the government as premier and Mr Hu is state president. The politburo standing committee is the main decision-making body. The National People's Congress is the largely rubber-stamp legislature. The Chinese People's Political Consultative Conference, a prominent advisory body, contains representatives of political, social and religious groups. There is no formal political opposition to the CCP.

  Policy issues: China's leaders want continuing economic liberalisation and sustainable growth alongside enduring political control. They recognise that many people have not benefited from economic reforms and that growing social inequality constitutes a political liability. Accordingly, the emphasis in economic development is being altered in favour of social priorities. Another challenge facing the government is to rebalance the economy, which has been dangerously dependent on high levels of investment spending and exports. Rapid income growth will gradually boost the contribution of domestic consumption to economic expansion, but difficult reforms (particularly in the financial sector) will be required before household spending is fully unleashed.

  Taxation: The standard rate of corporate income tax is 25%. China has a progressive income tax system, with marginal rates as high as 45%, but tax evasion is rife. Indirect tax is the main source of tax revenue, but the burden will increasingly be shifted to taxation of personal income, and particularly that of high earners.

  Foreign trade: China's trade surplus (in balance-of-payments terms) fell to US$243.5bn in 2011, from US$254.2bn in 2010. Exports totalled just over US$1.9trn in 2011, while imports were worth around US$1.7trn.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & transport equipment	47.5	Machinery & transport equipment	36.2
  Miscellaneous manufactures	24.2	Crude materials	16.4
  Manufactures classified by material	16.8	Mineral fuels & lubricants	15.8
  Chemicals & related products	6.0	Chemicals & related products	10.4
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  US	17.1	Japan	11.2
  Hong Kong	14.1	South Korea	9.3
  Japan	7.8	Taiwan	7.2
  South Korea	4.4	US	6.8

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  December 01, 2012

• Structure

  China: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  China: Country outlook

  China: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The political dominance of the Chinese Communist Party (CCP) is not expected to be challenged in 2013-17. Factional struggles within the party are more likely to be a source of political instability. These rivalries were evident in the fall of Bo Xilai, Chongqing's maverick party secretary, who was subsequently dismissed from the CCP in September; criminal proceedings against him are expected to be launched in due course. With the battle for the most senior positions having been largely settled by the outcome of the CCP congress in November 2012, however, the risk of an outbreak of severe factional conflict will be low in the early part of the forecast period.

  ELECTION WATCH: Since China's current leadership, headed by the president, Hu Jintao, and the premier, Wen Jiabao, came to power a collective-style government has emerged. The next reconfiguration of the political leadership began in November 2012, when the CCP's 18th congress selected its new party leadership. This will be followed by the installation of a new state leadership in early 2013. The vice-president, Xi Jinping, will succeed Mr Hu as president, while the current executive vice-premier, Li Keqiang (who is regarded as being Mr Hu's favourite among the rising generation of cadres), looks set to succeed Mr Wen as premier. The fact that Mr Xi and Mr Li are set to serve three terms each on the politburo standing committee, retiring in 2022, will put them in a very advantageous position over the other members of the committee, who will serve only one because of CCP age limits. Mr Xi's authority has also been strengthened by Mr Hu's decision immediately to hand over control of the CCP committee that oversees the military.

  INTERNATIONAL RELATIONS: The more forceful approach adopted by China on the international stage in recent years will continue under the new CCP leadership. The country is likely to be involved in a number of disputes with its neighbours in 2013-17, notably over territorial disputes in the East China and South China seas. Concerns about its power-projection capabilities will lead some of its neighbouring countries to look to the US for greater political and military support. China will be a crucial participant in global negotiations on a range of economic and diplomatic issues, but it is highly sensitive to perceived slights, interference in its internal affairs and what it characterises as attempts to curb its rise. Its ability to deal effectively with other major powers is hampered by the weak influence within China of the Ministry of Foreign Affairs.

  POLICY TRENDS: Although exports are no longer as important to China as formerly, rebalancing the economy away from its dependence on investment will be a crucial goal. The reluctance of the authorities to relax the tight policies governing the housing sector, or to launch a big stimulus drive, in response to the economic slowdown in 2012 has been a sign of its commitment to this aim. To boost the role of consumption in driving economic growth in 2013-17, the government will look to raise the incomes of the less well off. Further redistributive tax reforms could be enacted, and officials will support workers' efforts to secure substantial pay increases. The household registration (hukou) system, which prevents migrant workers from accessing state welfare services in localities other than their place of birth, may also be relaxed. Despite growth in spending on health, education, pensions and poverty alleviation in the forecast period, these services will remain underdeveloped.

  ECONOMIC GROWTH: The Economist Intelligence Unit estimates that real GDP growth will slow to 7.7% in 2012, from 9.3% in 2011. Loose monetary policy and investment in government-backed infrastructure projects will drive an acceleration in growth in the final quarter of 2012. Weak demand for Chinese exports, and a sharp slowdown in growth in property investment and activities in associated sectors, will hold back GDP growth in the year as a whole, but strong growth in incomes will continue to support private consumption. Real GDP growth will accelerate to 8.5% in 2013, with investment benefiting from a modest upturn in real-estate development and external demand picking up slightly in line with marginally faster global economic growth.

  INFLATION: Consumer price inflation is expected to slow to 2.8% on average in 2012, from 5.5% in 2011, as economic growth decelerates and global commodity prices moderate. However, in the forecast period strong liquidity growth and booming demand will generate upward inflationary pressures. We expect inflation to average 4.2% a year in 2013-17, but there are upside risks to our forecast. Food and transport costs in China are exposed to volatility in global oil prices. Local agricultural costs are meanwhile dependent on the vagaries of the weather, and pork prices look set to record a new cyclical upswing in 2013.

  EXCHANGE RATES: China's trade surplus as a proportion of GDP is forecast to fall to modest levels in the forecast period, while the current account will move into deficit by 2016. The country will thus be in a strong position to resist external pressure to allow a faster rate of currency appreciation. The renminbi is now probably close to a market-determined level, with the consequence that greater volatility in its value, including bouts of depreciation, is likely in the next five years. The renminbi's daily trading band against the US dollar is likely to be widened further, thereby permitting market forces to play a greater role in determining the currency's value.

  EXTERNAL SECTOR: China's current-account balance is expected to move from an estimated surplus equivalent to 2.7% of GDP in 2012 to a deficit of 0.9% by 2017. Merchandise exports will grow by 9.6% a year on average in 2013-17, slower than in the recent past, owing to the erosion of the country's price competitiveness. A large proportion of China's imports consist of components that are assembled locally before being shipped overseas, and imports and exports therefore tend to expand at similar rates. However, a growing proportion of imports are used to make goods for domestic consumption. Partly as a result, merchandise import growth will outpace export expansion in the forecast period, with imports increasing by 12.8% a year on average.

  December 01, 2012

• Forecast

  China: Country forecast summary

  Country forecast overview: Highlights

  • The vice-president, Xi Jinping, assumed leadership of the ruling Chinese Communist Party (CCP) at the party congress in 2012, and will take over from the current president, Hu Jintao, in 2013. Li Keqiang will become state premier in 2013, replacing Wen Jiabao. The CCP's new politburo standing committee has a conservative tilt, suggesting that it will be reluctant to take on vested interests in the state-owned sector or to introduce substantive political reform.
  • Modern technology and a more politically engaged youth will put China's authoritarian political system under pressure in 2013-17. However, unrest is likely to remain localised and to pose little threat to national stability. Strengthening its control over China's regions will also be a priority for the central government, but unrest will persist in Tibet and Xinjiang.
  • The integration of China into the global political system will generate tensions with the US. China will become more proactive diplomatically on the world stage. Economic relations with Taiwan will continue to deepen, but clashes with rival claimants to parts of the East China and South China seas may escalate.
  • Real GDP growth will slow in 2013-17 but will still be strong, at 7.6% a year on average. Progress will be made on rebalancing the economy as private consumption grows rapidly. However, fixed investment will remain an important driver of economic expansion. Net exports will subtract from GDP growth throughout the forecast period.
  • Labour shortages will support wage growth, while rising input costs and the shrinking area of agricultural land will drive up food prices. Against this background, the danger of high inflation will be a cause for concern in 2013-17.
  • The renminbi will appreciate from an average of Rmb6.29:US$1 in 2012 to Rmb5.98:US$1 in 2017. The authorities will interfere less in the currency markets, but the exchange rate against the US dollar will continue to be heavily managed to smooth volatility. As the government permits the renminbi to become more widely used internationally, it will steadily liberalise the capital account.
  • The current account will move into deficit in 2016. Merchandise export growth will slow in 2013-17 and strong domestic growth will boost import demand. The export-competitiveness of China's manufactured goods will be eroded by the renminbi's appreciation and rising domestic input costs. Income from Chinese investment abroad will grow during the forecast period.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	7.7	8.5	7.9	7.7	7.3	6.4
  Consumer price inflation (%; av)	2.8	4.8	4.2	3.9	4.2	4.0
  Budget balance (% of GDP)	-2.3	-2.1	-2.0	-2.0	-1.9	-1.3
  Current-account balance (% of GDP)	2.7	1.9	1.1	0.4	-0.1	-0.9
  Commercial bank prime rate (%; year-end)	6.0	6.8	7.5	7.5	7.8	7.8
  Exchange rate Rmb:US$ (av)	6.29	6.21	6.17	6.10	6.03	5.98
  Exchange rate Rmb:¥100 (av)	7.93	7.52	7.12	6.85	6.54	6.54

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  December 01, 2012

View detailed map

Country Briefing

Land area

9,561,000 sq km

Population

1.35bn (end-2011; official estimate)

Main towns

Population (millions) of metropolitan areas. (Economist Intelligence Unit Access China estimates, 2010)

Shanghai: 16.1

Chengdu: 8.4

Beijing (capital): 14.0

Wuhan: 8.3

Shenzhen: 11.1

Xi'an: 6.8

Guangzhou: 9.3

Zhengzhou: 6.7

Tianjin: 9.2

Nanjing: 6.2

Chongqing: 9.2

Changsha: 5.3

Climate

Continental, with extremes of temperature; subtropical in the south-east

Weather in Shanghai (altitude 4 metres)

Hottest months, July and August, 23-33°C (average daily minimum and maximum); coldest month, January, -1 to 9°C; driest month, September, less than 5 mm average rainfall; wettest month, June, 160-165 mm average rainfall

Language

Mainly putonghua, or Standard Chinese, based on northern Chinese (the Beijing dialect known as Mandarin); local dialects and languages are also used

Measures

The metric system is used alongside certain standard Chinese weights and measures, of which the most common are:

1 jin = 0.5 kg 2,000 jin = 1 tonne

1 dan = 50 kg 20 dan = 1 tonne

1 mu = 0.0667 ha 15 mu = 1 shang = 1 ha

Currency

Renminbi (Rmb), or yuan. Rmb1 = 10 jiao = 100 fen. Average exchange rate in 2011: Rmb6.46:US$1

Fiscal year

January-December

Time

8 hours ahead of GMT

Public holidays

New Year, January 1st-3rd; Chinese New Year, January 22nd-28th; Qingming Festival, April 2nd-4th; Labour Day, April 29th-May 1st; Dragon Boat Festival, June 22nd-24th; Mid-Autumn Day, September 30th; National Day, October 1st-7th. All public holidays are technically one day long except for Chinese New Year and National Day, which are three days long. When the holiday covers weekdays in excess of this figure, they are compensated for by working weekends around the holiday

March 01, 2012