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Changes and Challenges for China in 2013

Authors: Adam Segal, Maurice R. Greenberg Senior Fellow for China Studies and Director of the Digital and Cyberspace Policy Program Elizabeth C. Economy, C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations Yanzhong Huang, Senior Fellow for Global Health Minxin Pei, Director of the Keck Center for International and Strategic Studies, Claremont McKenna
December 26, 2012

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This October, China's Eighteenth National Congress ushered in a new generation of leaders that will set the agenda for the second-largest economy in the world, provoking myriad questions about what we'll see out of the country in the coming year. CFR's Adam Segal predicts continued international concern for China's cyber policy, while CFR's Elizabeth C. Economy weighs its challenges of keeping "foreign policy front and center" against a heavy list of domestic concerns. Claremont McKenna's Minxin Pei adds that China will be forced to respond to calls for greater political openness, facing a delicate balancing act. CFR's Yanzhong Huang points out that despite China's highly publicized health-care achievements, reform hasn't fundamentally solved the problem of access and affordability.

Adam Segal, Maurice R. Greenberg Senior Fellow for China Studies and Director of the Digital and Cyberspace Policy Program

Now that Xi Jinping has been officially installed as general secretary of the Chinese Communist Party and the other six members of the Politburo Standing Committee have been named, the question is whether the new leadership will embrace a program of reform in the coming year, and if it does, whether it can actually follow through. There have been interesting signals on the domestic front--Xi's visit to Shenzhen, public statements on corruption, and calls for a simpler, less formal governance--that Xi wants to distance himself from Hu Jintao, at least on a symbolic level. There have also been signs that Internet restrictions are gradually being lifted: for the first time in months, Chinese netizens can search for Xi Jinping, Li Keqiang, and other top leaders' names on Weibo and other social media sites.

Yet any dramatic change in Chinese cyber policy in the near term is unlikely. It had to be highly embarrassing that concerns for regime stability forced censors to block searches for China's own leaders during the Eighteenth Party Congress, but authorities see a relatively open domestic Internet as an important source of unfiltered information and a tool to guide public opinion. More than 60,000 officials and government agencies have accounts on Weibo. A more open domestic Internet is essential whether Xi turns out to be a genuine reformer or simply concerned with atmospherics. Besides, restrictions on information from the outside should be expected to remain in place.

China will also continue to try and shape global cyberspace. At the International Telecommunications Union conference in Dubai, China, along with Russia and others, reportedly submitted and then withdrew a proposal that would have recognized their right to block foreign websites and shift some of the technical control of the Internet from American-based non profit Internet Corporation for Assigned Names and Numbers (ICANN) to the United Nations. These efforts will extend beyond Dubai as the Chinese promote a vision of a more closed, sovereignty-based Internet.

Xi Jinping is likely to extend China's development as a cyber power. Hu's National Congress work report, which Xi had a part in drafting, admonishes China to "attach great importance to maritime, space, and cyberspace security" and calls for setting up a trustworthy "information security system." No matter what direction Xi takes in the short term, it seems that China's cyber policy will continue to raise concerns.

Elizabeth C. Economy, C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations

Delivering on the domestic front will no doubt occupy much—if not most—of Chinese president-elect Xi Jinping's first year in office. Cleaning up corruption, addressing the growing wealth gap, and rebalancing the Chinese economy are just a few of the daunting items Xi must tackle.

Yet Xi will also be forced to keep foreign policy front and center. In contrast to his predecessor Hu Jintao, who came to power at a time when China was celebrating a trifecta of triumphs—accession to the World Trade Organization, a successful bid for the 2008 Olympics, and first time host for the Asia Pacific Economic Cooperation forum—Xi's transition moment is marked by a far more uncertain and challenging foreign policy environment.

Xi's most pressing challenge is dialing down the anti-China sentiment boiling over in Beijing's backyard. He has already taken a few steps toward this end, channeling the ever-conciliatory Premier Wen Jiabao by stressing China's desire for a "win-win relationship" and calling for China to be an engine of growth for the region. Despite having contentious political relations with its neighbors, China is moving forward with talks on a regional free trade agreement with South Korea and Japan.

But it is too early to declare a return to a kindler, gentler China. Xi has also called for the great rejuvenation of the Chinese nation and declared that Beijing is "firm in safeguarding China's sovereignty, security and territorial integrity." With Xi at the helm of the Party's South China Sea small group since 2011, Chinese policy in the region has been increasingly assertive.

Xi also needs to rein in and integrate all the disparate domestic actors that undermine a coherent and well-executed foreign policy. China's state-owned enterprises, cyber-hackers, and intellectual property thieves are front-line actors in the country's foreign policy, often shaping China's behavior and image in disconcerting ways. And the Public Security Bureau and local governments are reportedly responsible for some of China's most provocative moves in the South China Sea.

The biggest question facing Xi, however, is what type of power he would like China to become. On issues related to foreign trade and investment or intervention in crisis states, will he seek to align China with accepted norms or move to reform current practices? And in cases in which norms are still developing, such as cybersecurity, how interested will he be in engaging or even assuming a leadership role in developing shared standards? The world wants a real reason to believe Xi's commitment to "peaceful development" and a "win-win" foreign policy. As Xi himself has said, "Making empty talk is harmful to the nation, while doing practical jobs can help it thrive."

Yanzhong Huang, Senior Fellow for Global Health

In April 2012, the director of the State Council Health Care Reform Office announced that targets set in the three-year plan for China's health-care reform had been accomplished on schedule. There is no denying that the reform has led to expanded health insurance coverage and increased provision of public health services—it has also contributed to the strengthening of grassroots healthcare institutions. However, there has been at best mixed success in reforming the essential drug system. The past year was supposed to be a year of deepening health-care reform. The government selected about 300 pilot counties and cities for reforming public hospitals, which is considered the most important component of healthcare reform. It also announced plans to raise the reimbursement level for catastrophic illness to more than 50 percent, which is an important step toward reducing the share of out-of-pocket payments to 30 percent by 2015. Despite this, the reform has not fundamentally solved the problem of access and affordability. The officially stated 95 percent coverage rate contradicts the fact that more than 200 million migrant workers are actually not covered in China. Meanwhile, disintegrating business ethics and lack of regulatory capabilities have made food safety an unpredicted concern in China.

Driven by the need to maintain legitimacy and to stimulate domestic consumption, the new Chinese leadership is expected to commit to the building a social safety net in the coming years. For health-care reform to succeed, the new leaders have to demonstrate significant progress in reforming the public hospitals and make health care more affordable. In the absence of fundamental changes in public hospitals' financing and management structures, health-care costs will likely continue to increase rapidly. This could be exacerbated by population aging and the growing burden of chronic noncommunicable diseases (NCDs). Today, more than 80 percent of the mortality in China is attributed to NCDs, which is significantly higher than the world average (63 percent). So far, the government has not adopted a proactive approach to addressing NCDs and their risk factors (e.g., tobacco use). Sustained government funding for the healthcare sector is also threatened by local public financing problems. Local governments, which provide the lion's share of government health spending, still do not have the incentives and capabilities to effectively implement important reform measures. A fundamental overhaul of China's health sector therefore entails reforming China's archaic political system.

Minxin Pei, Director of the Keck Center for International and Strategic Studies, Claremont McKenna

Conventional wisdom will identify reviving economic growth and reform as the top policy priorities of China's newly installed leadership. This conclusion is not necessarily wrong; obviously, Xi Jinping will try to do his best to fix the sputtering Chinese economy, and will be unlikely to take the risky course of pushing for liberalizing political reform.

However, Mr. Xi is also under pressure to show that he is not just another stability-obsessed apparatchik. Politically, he will have to respond to the calls from various segments of Chinese society for greater political openness. Given the political constraints he has to face, Mr. Xi will have to perform a delicate balancing act.

The most likely political action Mr. Xi's government will take in 2013 is an anti-corruption campaign. Cleaning house, if the trash thrown out happens to be the cronies of your rivals, is good politics as well. That is why in the first year after a new leadership ascends to the top, the number of officials prosecuted for corruption typically doubles (and then falls to normal in the second year).

In fighting corruption, Mr. Xi may have to relax the party's tight grip on press control. But here he will face enormous opposition from his conservative colleagues and party officials, who naturally fear that greater openness in the media will unleash a tidal wave of political dissent. The more reasonable thing to expect is an erratic pattern of loosening and tightening as the new government tries to use the media to its advantage, then pulls back once the press gets too aggressive.

Another political test for Mr. Xi is getting rid of some unpopular draconian policies and laws. The one-child policy is Exhibit A. He will have to demonstrate some political courage to change this counterproductive policy. Another much-hated institution, laojiao (reform through education), is also due for abolition. Laojiao gives the police unlimited power to jail minor offenders for up to three years without a judicial procedure. It is frequently abused by local authorities to punish political dissidents and ordinary people who petition higher authorities for justice. If Mr. Xi chooses to end laojiao, he will gain a great deal of political capital and admiration from the people.

Admittedly, this is not a list meriting the designation of glasnost or perestroika. But Mr. Xi will be considered a risk-taking leader if he chooses to pick these fights in his first year in office.

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