China's year in review: part one

In the first of a two-part series, China Spectator looks at the important developments that shaped China in 2014.

As 2014 draws to a close, it is time to look back at the important events that have shaped China. In many ways it was a momentous year: it was year zero after the Chinese Communist Party announced its ambitious reform program to revamp the country’s economic as well as governance systems.

The jury is still out on whether Xi Jinping, China’s most assertive and powerful leader since Deng Xiaoping, has done much to implement his reform program during its first year. Many commentators and analysts have been disappointed by the progress to date.

However, Arthur Krober, one of the best China analysts in the world, argues Xi’s performance has been very solid compared to other lacklustre world leaders like Barack Obama and Shinzo Abe.

As Nobel laureate Joseph Stiglitz remarked in his Vanity Fair article, 2014 is also the year when China overtook the United States as the world’s largest economy -- a historic event that has gone relatively unnoticed. And perhaps for a good reason: the US is not psychologically prepared to cede its position, nor is China willing to assume it.

On the economic front, we started the year with many doomsday predictions of a ‘Lehman moment’ in China, and the concern morphed into the property sector. But, Beijing has largely contained the risk for the time being without unleashing another round of stimulus and the central bank has been remarkably disciplined in its monetary policy.

In terms of political development, 2014 was a year of turbulence. Xi Jinping has been clamping down on political dissent, arresting activists and tightening the party’s control over the media including, the country’s social media. However, the anti-graft campaign is without a doubt the centrepiece of Xi’s new reign.

China Spectator will look at the ten most important events that happened in China this year in a two-part series.

1: The anti-graft campaign

The most feared political institution in China at the moment is the Central Discipline and Inspection Commission of the Chinese Communist Party. The anti-graft watchdog is touring the country and striking fear into millions of corrupt party cadres and officials.

Since the anti-corruption campaign began more than a year ago, it has arrested a score of most senior party officials in the country, including a retired member of the standing committee of the politburo of the party, the most powerful political body in China, as well as the deputy head of the People’s Liberation Army.

Ten of thousands of officials have been arrested, charged, disciplined and even tortured. Once untouchable institutions such as the military are under the spotlight, senior generals have been ousted, and some committed suicide under pressure.  

Though it is still early days to make a call on whether Xi is simply waging a war against his political enemies or trying his best to clean up China’s endemic corruption. It is worth quoting Arthur Krober. He said: “Each month that the campaign continues, and each new institution that falls prey, will strengthen the argument that the anti-corruption drive is a broader effort to remake the nation’s governance structure.”

It is also interesting to note that China’s anti-graft effort is spreading to countries like Australia, the US and Canada -- places that are popular for crooked officials. 

2. What the heck is the ‘new normal’?

The hottest economic buzzword in China this year is the ‘new normal’. It is an attempt by China’s top leaders to describe the state of transition in the economy.

After more than three decades of double-digit growth, the economy is experiencing a much slower pace of growth of about 7 per cent.

At the beginning of year, pessimists were predicting an explosion in China’s local debt market and then the concerns moved on to the property sector. These concerns are likely to continue into the foreseeable future, but Beijing has adroitly managed these issues this year and the central bank has been remarkably disciplined in exercising tight control over credit.

One of the biggest concerns for Beijing that has been somewhat ignored by many analysts is the funding crisis for the country’s SMEs. Many of these companies are paying usurious rates for their loans. Beijing has tried many unconventional tricks without a great deal of success and it was forced to cut interest rates recently to ease the burden on them.

3.  Umbrella revolutions in Hong Kong and electoral defeat for pro-China KMT in Taiwan

Students and citizens of Hong Kong took to streets for more than two months, protesting against Beijing’s failed promise to give them true democracy.  

There were some violent clashes at the beginning and the authorities mishandled the situation by using excessive force, including the use of tear gas.

However, after some initial mishaps, local Hong Kong authorities decided to wear protestors down by offering concessions to their demands. The tactic worked and the protest movement, which had been dubbed the 'umbrella revolution', fizzled out after 75 days of heroic resistance.

As our Hong Kong correspondent Antony Dapiran argues in his piece, “it is clear that Hong Kong is set for an extended period of political disruption”. The government’s tactics of selective policing as well as the use of court orders to clear protest sites have damaged the city’s strong tradition of rule of law.

However, the electoral defeat of the pro-China ruling KMT in Taiwan is far more significant than Hong Kong. 

People may criticise President Ma for his political incompetence as well as his pro-China trade policy. However, he has been absolutely instrumental in reducing tensions between mainland China and Taiwan, once considered one of the most dangerous flashpoints in the world.

After KMT’s disastrous performance at the local elections, it is probable that the pro-independence Democratic Progress Party will win the 2016 presidential election. It is likely that the cross-straits relationship will once again become a contentious issue for diplomats and military planners in Beijing, Washington and Taipei.  

4. The rise of Alibaba and Chinese e-commerce

One of the biggest business stories of the year has to be the spectacular IPO of Chinese e-commerce giant Aliabba.

The Chinese company is one of the largest internet ventures in the world and sells more goods than Amazon and eBay combined.

The rise of Alibaba is not simply a story about Jack Ma. The bigger picture is how e-commerce is reshaping China’s consumer market. While the country’s manufacturing sector is stagnating, the e-commerce sector and its associated industries such as fast delivery is going gangbusters.  

The company is also helping to build a new ecosystem of business in China from internet finance to cloud-based services delivery. 

Sabrina Peng, a director of Alibaba Group told China Spectator that “we are really a data company”. Internet-based finance is already challenging the dominance of banks and drawing a record number of depositors.

More importantly, it shows what Chinese entrepreneurs are capable of accomplishing if the visible hands of an intruding government are kept at bay.

5. China’s new Marshall Plan

Within a short space of year, China has established three new multilateral financial institutions with a combined capitalisation of US$240 billion: the New Development Bank, the Silk Road infrastructure fund and the Asia Infrastructure Investment Bank.

It is clear that Beijing wants to play a more prominent role in international affairs but has been frustrated with existing institutions such as the World Bank and the IMF. Building infrastructure and improving connectivity with trading partners is a key element of China’s economic strategy.

Another aspect of this approach is to help China to export its excess capacity as well as technology. A good example of this is the country’s high-speed railway. The Chinese Premier has taken the job as the chief salesperson for the Chinese transport technology. 

Read about the second part of China's year in review tomorrow.