East Asian Policy

In 2011, the Chinese government overcame a string of challenges ranging from inflation and corruption to social unrest. However, the government's soaring fiscal revenue in the aftermath of a global financial crisis has sparked a domestic backlash of guofu minqiong (the state is rich, the people are poor). The Chinese Communist Party on the other hand has been busy reshuffling Party and administrative officials at various levels to prepare for leadership succession at the 18th Party Congress in 2012.

China's economic growth in 2011 slowed to 9.2% from the 10.3% of 2010 while inflation went up to 5.4%, well above the government's original target of four per cent. In 2011, China's economic growth mode changed from export- to domestic consumption-dominated, a development in line with government plans. For 2012, the outgoing leadership is likely to mobilise all available sources to maintain reasonably fast growth for the sake of a smooth leadership transition.

China's foremost foreign policy challenge in 2011 was to grapple with an increased American presence in the Asia-Pacific which has affected the dynamics of big power relations in the region. China, nevertheless, did not overreact but sought stable ties with major powers and friendly cooperation with its neighbours. It also tempered expectations of its role in the eurozone debt situation. With an impending leadership succession in 2012, China will place a premium on maintaining a stable external environment.

After two Chief Executive leadership, it is evident that Hong Kong has been ruled by polling, not the government, as seen in the policy U-turns in 2011. The government has failed to build public confidence in its leadership despite achievements such as raising Hong Kong's GDP per capita by 22% under Tsang's administration. A historically high proportion of people since the handover had identified themselves as Hong Kongers rather than Chinese citizens in June 2011.

While the Ma administration claims that the Economic Cooperation Framework Agreement is a means to promote Taiwan's economic growth, the opposition party, Democratic Progressive Party (DPP), continues to blame the Kuomintang for its negative impacts on Taiwan's economy. Politically, limited progress on cross-strait relations has been made. Beijing and Washington had paid close attention to Taiwan's 2012 presidential election for the unpredictable variables it may add to future China-US relations.

The Taiwanese government forecasted economic growth to dip from 10.7% in 2010 to about four per cent in 2011 and 3.9% in 2012. Reasons for the dip were the earthquake on 11 March 2011 in Japan and the weak demand from Europe and US markets, a situation which is expected to affect the Taiwan economy in 2012. Nonetheless, cross-strait economic relations are likely to progress further after Kuomintang's victory in the 2012 presidential election.

Contributory factors to Japan's poor economic performance in 2011 included the March triple disasters, the eurozone financial crisis and the yen's appreciation. The rise of 52-year-old Noda Yoshihiko as Prime Minister signals the changing of the guard in Japan. A consequence of voter discontent with the two major national parties (the Democratic Party of Japan and Liberal Democratic Party) is the rise of regional parties possibly leading to a major political realignment in Japan.

Discussions around political reform have reemerged among Chinese intellectuals. Officially, the Beijing leadership has not responded to these discussions. However, its response came in the form of ideological propaganda as indirect criticism of the discussions, political repression over the discussions, positive consonance with the discussions and advocation of the Maoist practice as an alternative to political reform. It is highly doubtful that the 18th Party Congress will adopt a systematic plan of political reform.

China's Central Military Commission (CMC) will witness another round of generational change at the forthcoming Eighteenth National Congress of the Chinese Communist Party in 2012. Hu Jintao and Xi Jinping would remain top leaders of the CMC and seven members are likely to be replaced. Although the new military leadership is unlikely to alter civil-military relationship, the emergence of princeling generals would tip the balance in favour of the gun.

An increasing number of top executives of China's giant state-owned enterprises (SOEs) have become provincial leaders through a scheme of cadre grooming by rotating their positions. Overall, SOE executives constitute a valuable pool of human resources from which the Chinese Communist Party (CCP) can draw upon to promote local economic development. These CEO-turned provincial leaders inject fresh blood into the CCP's cadre corps but they also provide the bridge for state intervention in the marketplace.