A letter to our readers

Dear readers,

As 2014 draws to a close, I want to take this opportunity to thank you for your patronage and support this year. 

It's been an exciting year for the Australia-China relationship. It got off to a bit of a rocky start but finished on a high note. Australia finally managed to pull off an historic free-trade agreement with China, a deal which is as much about business as politics.

Chinese President Xi Jinping spent a week in Australia, which included a visit to Tasmania. Wu Jianming, a former Chinese ambassador to France, told China Spectator it was “unprecedented” and showed how much Xi cared about the relationship.

The most important development in China has been the anti-graft campaign. We have seen the downfall of two of the most senior party officials in modern history: Zhou Yongkang, a former member of the Standing Committee of the Politburo of the Chinese Communist Party, and Xu Caihuo, a former deputy head of the country's Central Military Commission.

Scores of minister-level officials and senior executives from the country's powerful state-owned giants have been arrested, while tens of thousands of minor functionaries have also been disciplined, stripped of their positions and, in some cases, tortured.

Though the jury is still out on whether this campaign is simply a personal vendetta against Xi's political enemies, it is clear that there is some serious house cleaning going on. Arthur Kroeber, arguably one of the best China analysts out there, says each month that the campaign continues (and each new institution that falls prey) will strengthen the argument that the anti-corruption drive is part of a broader effort to remake the nation's governance structure.

China's anti-graft efforts have reached our shores too. Australia is one of favourite destinations for corrupt officials to park their ill-gotten goods and we have already found some of them living here. Given China's human rights record, how we handle Beijing's request to hunt down crooks will be a diplomatic challenge for Canberra.

On the economic front, we started the year with many doomsday predictions of China's own impending ‘Lehman moment'. I have to confess that I was persuaded by these arguments at the beginning of the year. However, Beijing has managed to stabilise the economy without unleashing another epic stimulus package. The central bank needs to be congratulated for its discipline in reining in loose credit.

However, many of the problems -- such as a weak property sector, excess capacity in industries such as steel and cement and burgeoning local debt -- will be with us for many years to come. Beijing is trying every trick in the book to deal with them, but don't expect them to be resolved anytime soon.

The spectacular success of Alibaba is a ray of hope for a Chinese economy that is undergoing significant structural change. More importantly, it shows what Chinese entrepreneurs are capable of accomplishing if the visible hands of an intruding government are kept at bay.

Though it is fashionable to be a China bear these days, it is worth pointing out that the country is still growing at 7.3 per cent a year, faster than any other major economy.

Beijing has yet to deliver any major breakthroughs on the ambitious reform agenda it announced at the end of last year. However, there are some encouraging signs.

The central bank has indicated repeatedly that it plans to liberalise interest rates, and has already taken some tentative steps towards doing so. When that happens, it will be a significant milestone in the history of China's financial reform, ending decades of financial repression for long-suffering depositors.

In 2014, Taiwanese and Hong Kong students took to the streets, voicing their opposition to ever-closer integration with mainland China. As described by our Hong Kong correspondent Antony Dapiran, the city is set for continued political disruption.

More importantly, Taiwanese voters have comprehensively rejected the pro-China KMT at local elections. It seems likely that the pro-Independence Democratic Progress Party will win the 2016 presidential election. After years of calm under the current Ma administration, the cross-strait relationship has the potential to become a dangerous flashpoint in the future.

On the diplomatic front, China has dialled down its overtly assertive approach. Years of bullying tactics have raised concerns around the region. The United States is strengthening its military alliances in Asia as a counter-balance to China. Beijing seems to have had second thoughts about its approach; Xi even managed to have an awkward conversation with his arch-rival Shinzo Abe of Japan.

Instead of riling neighbours with warships and jetfighters, Beijing has launched a new charm offensive backed up with hard cash. China has established three multilateral financial institutions with an initial capitalisation of $US240 billion. This money has been earmarked for infrastructure.

Last but not least, Xi is clamping down on dissent in China. Many influential voices or ‘big Vs' on social media have been effectively silenced. Journalists and activist lawyers have been put behind bars. Foreign companies are implicitly involved in this effort. Our Beijing correspondent Fergus Ryan broke the story on Linkedin censoring posts of its members, even when they are based overseas or sharing English-language content.

Thanks again for your readership and we welcome your suggestions and comments in the New Year.

Peter Cai

Editor of China Spectator