China: trends and forecast for 2016

The Peoples Republic of China is slowly but steadily moving towards the fulfillment of its strategic goals. Some of them are opposite to the established world order in the Pacific and South Eurasia regions, which for the last 20 years has been under the practical control of the United States. Moreover, the global vision of the Chinese leadership is opposed to both monopolarity as "Pax Americana" and also to the more abstract concept of "global leadership" with Washington as the leader. The idea of multipolarity (duojihua) that began to be developed by Chinese scientists in the 1990's, is not only the official position of Beijing, but more often it seems to be the only possible world order, for the future, in Chinese media. At the same time, US hegemonic aspirations, whether in its provocative demonstration of military force and the implementation of some projects within the framework of bilateral and multilateral relations in the region of Southeast Asia, are widely criticized.

Geographically, China is on the Eurasian periphery, although politically it has to balance between the Sea Power and the Land Power: the country is traditionally divided into the coastal zone, focused on trade with the outside world, and a vast land-mass. A skillful balance between the regions' interests, their citizens and political elites, as it was before, will be the main problem of governing of Beijing in the coming years. But if Mao Zedong exploited the idea of fighting against the bourgeois system, and Deng Xiaoping successfully combined the military planning and state capitalism, then in the current circumstances China needs new solutions.

However, in 2015 China made progress in some areas, in 2016 there are a number of symptoms that are expected to become visible, and the problems connected with both national characteristics and global challenges will be more pronounced.

Regional Geopolitics

In 2015, China was able to solve a number of serious issues of the regional geopolitics and national interests. Although there are tensions over the control of disputed islands in the South China Sea, Beijing's efforts show that, despite the existence of two opposing coalitions (one consists of the US's old partners, while others are trying to conduct a more independent policy), China managed to maintain the overall political line and not to change their strategy of action.
Beijing prefers diplomatic negotiations, for example the first round of talks on the demarcation of the disputed maritime territory with South Korea already took place in December of 2015, and Beijing plans to use this model with the other countries again if the process is successful. However the weight of its arguments at the negotiating table are the product of its displays of military force.

Although the United States wants to continue to use South Korea as a third party to contain both China and North Korea, it will not be easy, as the South Korean economy is closely tied with Chinese one.

There is also notable success in the regional political and infrastructural projects.

In Nepal, China successfully used the diplomacy of soft power by sending troops and humanitarian aid after the earthquake in April 2015, after which Nepal signed the Memorandum of Understanding with Petro China, which means the end to the Indian oil import monopoly in the country. In addition, Nepal became a founder of the Asian Infrastructure Investment Bank (ABII), where the leading role remains with China.

In Thailand, China also managed to agree on the start of the Kra Canal construction, which must be finished by 2025.
The project is part of the Chinese concept of the New Silk Road through Russia and Central Asian countries to Europe and the Sea Silk Road linking China, India, Pakistan and Africa. The channel length will be about one hundred kilometers and will cut the distance of sea lanes by 1,200 kilometers.

The new transport route creation will not only redirect cargo to the shorter route, but also allow a faster response to threats and challenges of China's interests in the Indian Ocean and near the African coast. At the same time China also points to the importance of the environmental component: the new route will reduce CO2 emissions.

China provides extensive assistance to Myanmar in the development of its industry and infrastructure. China also aims to become a major investor for oil and natural gas development in Myanmar. After the victory in the parliamentary elections, the democratic opposition did not carry out any major reforms either in internal politics or foreign relations. Most likely, Myanmar will maintain good relations with China and continue Beijing’s infrastructure projects.

On January 30th, 2015, the deepwater oil port at Kyaukphyu was officially opened on Maday Island in Myanmar and was built by China. The oil from the CNPC oil terminal tanks will come to China on the main oil pipeline, which runs parallel to the previously constructed main gas pipeline to bring gas from the Shwe block near the Rakhine coast to the People's Republic.

At the beginning of 2015, a new marine transport sailing company between Shanghai and Yangon was launched, which is operated by a subsidiary of the Danish company, Maersk.

Using Myanmar to contain China, as the United States planned, is unlikely even though it is possible and cannot be excluded that the US will use proxy forces, such as terrorist groups, to carry out sabotage activity on the main pipelines.
China still has a special interest in Taiwan. This year, dialogue was carried forward from where it was set for the last 20 years. The Chinese side believes that there has been an important step in  the normalization of relations between the two countries. The current Taiwanese President Ma Ying-jeou is considered to be pro-Chinese, but the second term of the partially recognized state's head comes to an end.

The chairman of the opposition, Democratic Progressive Party (DPP) Tsai Inven runs for presidency again, she is oriented to the West (she studied at the Law School at Cornell University and the London School of Economics). The DPP follows the idea of creating a Taiwanese nation with no cooperation with China.

Taiwan's National Party’s (Kuomintang) candidate for the upcoming January 2016 elections will be the Hong Syuchzhu. As the National Party’s rating has fallen, the DPP candidate is more likely to win, which means a sharp deterioration of the Chinese-Taiwan relations.

Relations between China and Vietnam are quite difficult. In September of2015, the leader of China officially visited Vietnam, but he had no significant progress. In Vietnam, there is the pro-American faction, represented by the Prime Minister Nguyen Tan Dung, who adheres to the reformist line, and the pro-Chinese faction, whose leaders are considered to be the general secretary of the Communist Party of Vietnam Nguyen Phu Trong and the Defense Minister Phung Quang Thanh.

Vietnam recently joined the Trans-Pacific Partnership under US leadership. This may reduce the Chinese investment in the neighboring country, as well as lead to a reduction of trade turnover between the two countries.

Washington successfully provoked Vietnam to confront China, although cooperation between China and Vietnam continues even in the military field (regularly conducted joint maneuvers in the Tonkin Gulf ).

Most likely, Vietnam will continue its policy of balancing between the US interests and China, which is typical for many Rimland areas. But the escalation of the conflict between Vietnam and China is unlikely.

North Korea is under Chinese economic tutelage, although Beijing was critical on DPRK 's nuclear test. The two countries are linked by common history, especially the conflict with the US in the 1950's.

In general, in 2016 China will try to continue the old strategy of economic involvement with neighboring countries, as it will have financial and investment opportunities, while approving the need to implement numerous joint regional security projects in the national interests of each country. Recently, Beijing succeeded in this, with the exception of the noted disputes. Consequently, there is no reason for China to stop its soft expansion into the region.

Eurasian Projects

China is actively developing cooperation through two main Eurasian projects: the New Silk Road and the Pearl Necklace. The first one provides for the establishment of infrastructure land routes through Central Asia to the EU borders, including free trade zones and special economic regimes. The former Soviet Central Asian republics are already integrated into the project. Afghanistan and Pakistan are still problematic, however the latter has agreed to a security forces deployment proposal along the routes that will connect the Gwadar deep-sea port to the Chinese border.

At the BRICS and SCO summit in Ufa (Russia), an agreement was signed between the leaders of Russia and China to combine the project of the Eurasian Economic Union and the New Silk Road. In 2015, no significant progress in this direction was made. In 2016, a breakthrough is quite unlikely, although there may be relatively minor changes to be discussed and coordinated by Moscow and Beijing.

As India and Pakistan entered the SCO, Beijing will be anxious about implementing ideas relating to its interests to the new organization members. 

The Arctic route is another strategic direction of China. Although the country has no outlet to the cold seas, China has long been interested in the Arctic north, and has an ice research vessel. In 2012, it made its first trip to the Northern Sea Route. Beijing plans to expand the capabilities of its icebreaker fleet for the maintenance of regular transport vessels. In 2014, it announced the creation of its own icebreaker project based on Finnish models.

China's interests in the Arctic fit into the concept of One Belt, One Road Strategy (OBOR), according to them, the Indian and Arctic Ocean are the southern and northern flanks of the Eurasian land mass. Therefore, with such a position, the Pearl Necklace in the South Seas and the Arctic sea route are linked.

While the Arctic sea route is under Russian control, which rapidly creates military infrastructure there, China could join the project not only as a regular freight carrier, but also as a partner in the oil and gas domain. Russian oil and gas monopolies are lacking in investments to develop of perspective fields. It can use China, who would thus enter into a series of projects as co-managing partner and get new technological experience.

As Africa is a continent, according to the concept Halford Mackinder, it is organically linked with the Eurasian continent, and both of them are the World Island. On the African continent, China pursues a successful economic policy. At the end of 2015, it became known that Djibouti will establish a Chinese naval base, which will be the first foreign installation for China. It is obvious that the creation of such an infrastructure is related to the strategic Chinese interests, not only in the Horn of Africa on the East Coast, but also in sub-Saharan Africa. Given the loyalty to the Chinese people from the local population (since China never invaded Africa by military force), next year we should expect ongoing success for Beijing in the region.

Economy

A slight decline of the Chinese economy is foreseen in 2016. Given the global impact of China's manufacturing and services, which may relate to traditional partners in Eurasia and Africa and Latin America.

In 2016, taking advantage of the oil prices fall, China will actively enter into agreements in this area and to diversify the domestic market of the oil products processing.

In November 2015, China formally entered the currency basket of the International Monetary Fund's Special Drawing Rights (SDR) currency basket. This means that at least there will be changes in the global economic structure. The SDR are supplementary foreign exchange reserve assets, emitted by the International Monetary Fund, and has only a non-cash form in bank account records. The SDR exchange rate is published daily and is based on a basket of the four major currencies: US Dollar, Euro, Yen and Pound Sterling. Before the euro creation in 1999, the rate was pegged to the five currencies basket: US Dollar, German Mark, French Franc, Yen and Pound Sterling.

However, China entering in the SDR has not only financial, but also geopolitical changes, as China has never been and is not an US ally, unlike the other SDR members. In the future, the use of the US dollar as a world reserve currency may be an anachronism, and China with its effusive economy could significantly change the balance of forces in the foreign exchange market. It is unlikely that this will happen in the near future, as the Yuan depends on leaps in China. But government regulation and the right Beijing policies may take a stable position in the world's foreign exchange market and make the Yuan freely convertible.

Moreover, the Chinese efforts in the transition to payments in national currencies with its strategic partners are noticeable. Taking into account the sanctions experience of Russia and Iran, these countries are most likely to try to settle all the formalities to make this mechanism work as quickly as possible.

In the future, China will try to implement its own unique system of banking operations like SWIFT on a global level , which will also avoid US mediation and supervision in transactions.

China has already prepared its own system, CIPS, the China International Payments System, to provide cross-border transactions in Yuan. It was officially launched in October of 2015. CIPS uses the standardized and adopted SWIFT as the industry standard syntax for financial messages, and a number of other technical standards.

If it is efficient, it is likely that in 2016 that financial institutions from different countries that are under the US sanctions or are skeptical towards SWIFT will transfer to the Chinese payment system.

China also plays a leading role in the BRICS  New Development Bank (the BRICS NDB). On July 1st 2015, China formally ratified the agreement on the BRICS bank. The headquarters of the bank is located in Shanghai. China has made the maximum contribution of $41 billion, for Brazil, Russia and India – about $18 billion each, and South Africa – $5 billion.
Although the contributions are intended to stabilize the national currency, China wants to push the BRICS NDB to cooperate with Asian Infrastructure Investment Bank (AIIB), initiated by China.

Home Policy

On the eve of the Congress of the Communist Party of China in 2017, Xí Jìnpíng will propose measures towards political consolidation and the fight against corruption. As a result of the purges, unwanted elements including the liberal wing of the Communist Party, could face repression. In China the death penalty exists, and people who have committed official and economic crimes are sentenced to death. On the one hand it will deter the officials, but on the others had, it may be criticized by the EU and the United States. However that may be, certain changes in the top and middle administrative echelons are inevitable. They may be accompanied by arrests and new scandals.

In 2016, reforms for state companies are planned too. The political process in the coming years depends on how efficiently the leadership of China will be able to solve problems arising from the transformation of power structures.
Due to the expected Chinese economy slowdown and rising unemployment in 2016, protests in the country are possible, which already occurred in 2014 and 2015. The coal industry would be especially weak, as well as cement and steel producers. It can cause political consequences as the preservation of low levels of unemployment is a Chinese Communist Party priority in recent years. The All-China Federation of Trade Unions is under the government control, which has 280 million members. The federation practically follows the party economic development plan, rather than defending the interests of trade union members, so there may be disagreements between the leadership and the masses.

China is also faced with internal separatist challenges, especially in the Tibet region and the Xinjiang Uygur Autonomous Region.  On December 27th, China's highest legislative body voted for the adoption of a law against terrorist activity. It is the first anti-terrorism law, which started to be considered in 2014. It is primarily aimed at solving internal problems, but is also related to the international security.

This year, China canceled the long-term one-child policy. It was received with enthusiasm in China and aims to establish the demographic balance due to the natural aging of the population. However in domestic politics, there are still many restrictions on the Chinese citizens, which are criticized by other countries. It is clear that China will not compromise on national interests and security issues, but for pragmatic reasons may sign international treaties and commitments on  “human rights” and “protection of freedoms”.

China's Military Power

In May of 2015 the State Council released the ninth White Paper on the country's military strategy, which contains the main points of the military policy.

The introduction states that "China's destiny is vitally interrelated with that of the world as a whole. A prosperous and stable world would provide China with opportunities, while China's peaceful development also offers an opportunity for the whole world. China will unswervingly follow the path of peaceful development, pursue an independent foreign policy of peace and a national defense policy that is defensive in nature, oppose hegemonism and power politics in all forms, and will never seek hegemony or expansion."  This allows you to better understand the aspirations of the Chinese People's Liberation Army.

The main strategic task of Chinese Army includes:
– To respond to a variety of critical situations arising and military threats, to effectively protect national territory, territorial airspace, sovereignty and security in the territorial waters; to firmly defend the unity of the motherland;
– To protect security and interests in new areas; to protect the security interests abroad; to maintain strategic deterrence of nuclear retaliation;
– To Participate in regional and international cooperation in the security field;
– To protect peace in the region and in the world;
– To strengthen counteraction against enemy intrusions, separatism and terrorism;
– To ensure national security and social stability;
– To assist in an emergency, to protect the legitimate interests and to ensure the national security protection and public support for the national economy creation and other tasks.

It shows the international significance of the Chinese armed forces and their potential use outside the country.
According to the foreign policy concept, the development and strengthening of military cooperation with foreign countries means raising their cooperation with European countries, the development of traditionally friendly military relations with Africa, Latin America and the South Pacific. It is supposed to deepen cooperation in the field of security within the framework of the Shanghai Cooperation Organization, increasing the defense ministers participation in the ASEAN forum, the ASEAN Regional Forum on Security, the Shangri-La Dialogue, the Dialogue on International Security Issues in Jakarta, the Western Pacific Naval Symposium countries, and other structures and cooperation organizations. Moreover, the Xiangshan Forum and other multilateral events seeking to focus on assistance for the establishment of a new framework for cooperation on security and maintenance of peace, stability and prosperity in the Asia-Pacific region are expected.

According to statistics, China increases its defense spending every year. Now the country is the second after the United States in terms of military spending by GDP. According to the SIPRI, in 2014, it was 2.1% of the GDP making up $216 billion. However, some believe that these figures are too low, and the reality of China is spending more money. It is obvious that in 2016, China is unlikely to dramatically reduce its defense spending, since according to its plan, it must continue to modernize the land, air and naval forces, as well as make a breakthrough in the space industry.
An important element is the rapid development of the Chinese Navy fleet, which is used to fight pirates in the Aden Gulf and in other troubled regions. As a part of the Pearl Necklace project, China needs to carry out its support for maritime communications. In addition, the current tensions in the South China Sea force Beijing to be ready to demonstrate their naval power. Meanwhile, the Chinese Navy uses its soft power, for example, a medical ship previously successfully carried out missions in different regions. In the near future we should expect  the Chinese navy to increase in strength.
Until recently, China had only one aircraft carrier, Liaoning, of Soviet production (used since 2012). Currently they have begun the creation of their own Chinese aircraft carrier of 110,000 tons displacement. It was planned that it will be launched in 2020. But it is most probable that its creation will be accelerated.

At the end of December 2015, the South China Sea fleet received three new vessels.

Other new military-industrial complexes in China should also be expected. Deng Xiaoping's formula on military and civilian combination, peace and no peace, development of military production with support of civilian production remains relevant even for the beginning of the third millennium.

Without exception, the military-industrial corporations of China are working in the civil sphere. So the nuclear industry in China, previously released mainly military products, follows the policy of  “nuclear energy use in all areas of management.” Among the main activities of the industry is the construction of nuclear power plants and wide development of isotope technology. A similar situation is in the space sector, civil aviation, automotive, etc.

At the same time, in 2016, military reforms are planned, which foresees a significant reduction in personnel, reorganization of military districts and the retirement of many officers. Beijing aims to conduct an orderly change and adaptation of former military personnel into the civilian sector.

As the first law on fighting with terrorism is adopted, China now can legally send its troops abroad. While there were speculations about Chinese special forces participating in Syria, in reality the use of certain military units could begin in 2016 in Pakistan and Afghanistan, where China has infrastructure projects.

It should also be noted that Chinese peacekeepers are now on a mission in Southern Sudan, Mali, Liberia, Sudan and the Democratic Republic of the Congo.

In September, during his speech at the 70th session of the UN General Assembly, Xi Jinping said that China is ready to join the UN new system. It shows the serious intentions of China to legally participate in peacekeeping operations around the world under the UN mandate.

It is unlikely to expect that in 2016 China will enter into an open military conflict with the United States or any regional country. Even if there is a possible escalation of the disputed islands with Japan or other countries using military force, it is likely that it would be an isolated instance, and the parties would be interested in quickly resolving the matter.

Internet and the Chinese Role

China is the originator of the sovereign Internet idea and successfully combines modern communication technology with the state ideology. The Great Chinese firewall, i.e. content filtering, became a narrative of Beijing cyber-politics. This approach shows that defining and stressing boundaries in cyberspace is not a universal norm, but depends on the civilizational identity. If Western countries, following in line with political liberalism, prefer to combine Internet freedoms with the free cyber-politics instruments (web 2.0diplomacy, virtual embassy support of the cyber-activists in other countries), the non-Western governments insist on national control over the Internet space. In other words, cyberspace is also a battleground of forces defending two different world orders: monopolarity and multipolarity.

December 16-19, the Chinese held the World Internet forum in Wuzhen. It is an alternative to the kind of events which take place in the West. It was attended by more than 10 thousand representatives of governments, international organizations, business companies and civil society. According to the forum agenda “An Interconnected World Shared and Governed by All - Building a Cyberspace Community of Shared Destiny”, the debate was concocted on the future of global Internet space.

It is clear that China will continue to work towards more strict control over the global Internet, and will insist on acquiring the rights to domain names and control over them from the ICANN company (USA), to the International Telecommunication Union under UN auspices, or to the new international structure.

In addition, technology companies will compete with American and British manufacturers of technical equipment. In 2015, China's Huawei has continued its successful expansion in the markets of many countries, offering all kinds of services and solutions in telecommunications. The following year, this trend will continue, despite the constant US criticism of global cyber-espionage by Chinese companies.

Conclusions

In general, China will maintain a predictable and rational policy. It may not be liked by some of the neighboring states, as well as by the traditional global players: the US and the EU. However, the policies and international ambitions of China have to be considered. Especially if one considers the fact that Beijing operates in conjunction with its traditional partners in a number of organizations, as well as within the various alliances: the SCO, BRICS, APEC, and others.

As for domestic policy, compared to the problems in other countries, the Chinese issues don’t seem to be so great as to represent an existential threat to the state or to the political system. There may be some friction and crisis situations, in which the country's leadership will actively intervene if it is necessary, using preventative force.