The coming of Chinese New Year is often a moment to reflect on what went before – and the previous Year of the Rabbit was a busy one for the People’s Republic of China (“PRC”).

Politics

In  terms of politics, General Secretary Xi Jinping dominated events, most notably after the retirement of Premier Li Keqiang at the National People’s Congress in March 2023, and his replacement with Li Qiang.  The top team is now entirely loyal to Xi. 

Li Keqiang was something of an economic liberal, but was forced by Xi to wear “small shoes” (小鞋子) (meaning his influence was curtailed), and hence he implemented few reforms. 

Li also died suddenly in October 2023, confirming longstanding rumours of ill-health, but also raising questions as to whether protests might emerge, as after the deaths of Zhou Enlai in 1976 or Hu Yaobang in 1989.  That did not happen, though. 

Also of note was the disappearance of Qin Gang (秦刚), the former Foreign Minister and Ambassador to the US, in June 2023, and his replacement by Wang Yi.  Heady rumours swirled of Qin’s siring a child with a famous TV reporter while in the US, and hence having compromised himself. 

Qin’s departure from office also coincided with similar purges of the PLA Rocket Forces, and of the Minister of Defence, Li Shangfu. These purges were said to relate to corruption in one of the key components of Chinese defence, which some commentators claimed meant that China was a “paper tiger”. 

Such claims seems exaggerated, though; assertions that rockets contained water not fuel do not sit with the reality that many Chinese missiles burn solid fuel.  These claims may thus come to bear comparisons with British belief prior to World War Two that the Japanese could not beat western soldiers – which proved very wide of the mark.

The upshot of these events was that Xi Jinping remains completely dominant in Chinese politics, but that his dominance poses separate challenges related to his selection of officials.

Qin Gang, in particular, reportedly won Xi’s trust when in control of the foreign affairs protocol responsibilities.  It may be that the general secretary’s isolation means he struggles to identify counsellors that he can trust.

Foreign policy

In terms of foreign policy, relations with the US started the year in a bad condition, with the drifting of a Chinese balloon across the US in January and February 2023. 

Dealings improved, though, thanks in part to a meeting between Joe Biden and Xi Jinping in  November 2023.  A form of détente between the big powers is now in place.

However, differences between China and the US remain intense, and that détente is fragile.  China appears determined to weaken the US ascendancy in East Asia in the long term, and the two powers disagree on any number of issues.  A new bout of sanctions or tariffs could easily hike tensions. 

Of particular note has been US frustration with Chinese economic support for Russia in the context of the Ukraine war, which some observers have characterized as akin to Soviet support for North Korea during the Korean war.  Comparable differences over Iran also affect ties. 

Most importantly, though, many in the US fear a conflict over Taiwan, with the election of a new president in January 2024 drawing much attention.  For now, a fragile status quo remains in place, in part thanks to the Democratic Progressive Party’s failure to win control of the legislature, and in part owing to Chinese reticence to provoke US ire ahead of US presidential elections in November 2024.

An economic mess 

The main challenge for China in the last year, though, has been economic.  In particular, the property crisis has gathered momentum, exemplified in the insolvency of Evergrande Group (中国恒大集团) in January 2024. 

Much here remains unresolved, and may yet spread further, to insurance and the trust sector.  A host of other property companies face serious challenges, including Country Garden Holdings and its smaller rivals.  The government has taken steps to shore up support, but nothing has yet revived confidence.

Indeed, a stock market plunge in the weeks ahead of Chinese New Year suggested that investors were losing faith in government policy, and the economy, going forward.  Concerns about the scale of local government debts, and the weakening demographic outlook loomed large, too. 

Of course, much of this catastrophizing is probably overstated, notwithstanding the real problems facing China.  After all, Chinese manufacturing remains strong, and the consumer sector, despite not being as robust as needed or hoped, remains significant.   

China is not just going to disappear, nor is de-coupling or de-risking easy to achieve; recent claims that Mexico is now a larger exporter to the US than China disguise the volume of Chinese inputs that go into products in Mexico.

The key takeaway

All told, then, events over the last year were dispiriting. 

It is increasingly clear that the Chinese government is adhering to a belief in the “iron fist of socialism” (社会主义铁拳), as a means to bolster its strength and see off its opponents – and that that policy is adding to Chinese strength, despite recent economic setbacks.

This “siege mentality” is also likely to stay in place for the foreseeable future, meaning the outlook could prove turbulent. 

This blog will look at what is to come in the Year of the Dragon in due course.