The Philippines’ Foreign Secretary Albert del Rosario said China has withdrawn all its ships from disputed Scarborough Shoal area after the two countries reached a verbal agreement to pull out from the lagoon, AP reported. Manila withdrew its two ships from Scarborough Shoal on June 15 due to storms, but said an unspecified number of Chinese boats remained in the area. The Philippines’ president threatened to send ships back to the contested area if Chinese vessels did not also pull back. Chinese Foreign Ministry spokesman Hong Lei said that the situation “is overall toward peace,” but did not comment on Chinese ships withdrawing from the area. The standoff at the Scarborough Shoal erupted in April when the Philippines accused Chinese fishermen of operating inside its exclusive economic zone; Chinese paramilitary vessels were deployed to protect the fishing ships.

From outside the country, China’s leaders often appear to be interchangeable. Few foreigners can recognize more than a handful of figures, and what distinct views those leaders have are not often articulated.

But Chinese politics are far from a static environment. With a crisis gripping Western countries and a leadership transition approaching in Beijing next year, China is now experiencing “an explosion of intellectual ferment,” as Kenneth Lieberthal, the director of the John L. Thornton China Center at the Brookings Institution, has put it.

It is a political situation without recent precedent. The People’s Republic of China certainly experienced factional splits in its earlier decades, but there has been a remarkable degree of unanimity among China’s leadership group – at least superficially – in the years since 1989.

However, since the “fourth generation” of leaders (led by Hu Jintao) came to power in 2003, political influence has become more diffuse, and the signs of differing approaches and opinions more evident. The last decade also saw a rise in the influence of think tanks, lawyers, NGOs and interest groups. Chinese media organizations have developed rapidly, and microblogging has enabled average Chinese people to send and receive exponentially more information.

Out of this plurality of voices, the outlines of at least two factions have become apparent, and the possibility of several others presumed. One group is “the princelings,” scions of China’s revolutionary elite. This faction includes the party chief of Chongqing, Bo Xilai, and the next party chief of China, Xi Jinping, both sons of prominent Communist leaders. The other faction is composed of leaders who have risen to power through the Communist Youth League, Hu Jintao’s power base. Guangdong Party Secretary Wang Yang, a proponent of financial reforms that would benefit the middle class, is a prominent member of this group.

Bo and Wang are far from being the most influential players in the field; it is not yet certain whether one or both of these men will earn a seat on the Standing Committee that will be announced at the 18th National People’s Congress at the end of this year. But they are often seen as representing the interests of distinct social classes, and there is a sense that either of them could rally various interest groups.

The risk that a plurality of voices presents to a one-party system is clear. But thus far, the factions have negotiated a careful balance. Many speculate that one product of this negotiation is the choice of Xi Jinping, a princeling, and Li Keqiang, a former leader of the Communist Youth League, as the probable “dual heirs apparent.” The coming year is likely to bring more examples of this kind of careful political calculation.

Deep freeze

Politics is being played out more visibly in Beijing these days, as it would in any country undergoing a leadership transition. The outcome of this situation is that Beijing will be less likely to introduce any significant economic reforms in the next year – even if the economic situation necessitates them. Politicians are still jockeying to solidify their positions ahead of the congress, making them less likely to adopt controversial positions that could weaken their base of support.

The US, too, will no doubt see its legislative abilities slow to a crawl during its own election year. But the difference is that the Beijing consensus must be hammered out through careful negotiations.

Policies will be enacted over the next year, but gradualism is likely to remain the order of the day. For example, take municipal bonds, a trial program rolled out in late 2011. The program simply enlarged the existing financial system rather than changing fundamentally the way the country distributes cash and builds up debt.

Other potential changes seem similarly unlikely to challenge any of the economy’s vested interests. Rather, they will aim to maintain stability and the status quo. One safe topic is welfare politics, such as the affordable housing program. Not surprisingly, almost all Chinese politicians express fervent support for enhancing social programs for the poor.

But these programs, while undoubtedly helpful to some, will not necessarily help the government in its much-publicized goal of achieving “inclusive growth.” This catch phrase refers to the initiative, part of the current Five-Year Plan, to shift China’s economy from its reliance on fixed-asset investment and exports towards domestic consumption.

Wen Jiabao emphasized the need for these reforms when he called China’s economy “unstable, unbalanced, uncoordinated, unsustainable” nearly five years ago. With the global economy so fragile, those reforms seem even more urgent today, but concrete progress towards rebalancing has thus far been minimal.

And it may remain so. Wen captured the situation in a lesser-known quote on the subject. China’s socio-economic development is like a person with one long and one short leg, he said – the long leg is economic reform, the short leg, social reform. The outcome is that development proceeds slowly and unsteadily. That may turn out to be the case.

Following its entry to the WTO, China laid waste to entire industries in Mexico, but one bright spot remained: the automotive sector. Due largely to the North American Free Trade Agreement (NAFTA), Mexico remains a crucial part of the US automotive supply chain, exporting 80% of the auto parts it produces to the US.

China has not been in a position to compete in the US auto market because thus far it has not had a surplus of cars or parts available for export, said Enrique Dussel Peters, director of the Center for Chinese-Mexican Studies at the National Autonomous University of Mexico (UNAM). Domestic consumers are already buying every car China produces, and the remaining 5% of domestic demand is filled by imports.

But in two or three years, when supply is expected to outstrip domestic demand, China is likely to go after global market share. Secondary markets will probably come first – such as Russia, Africa and Latin America – followed by more developed markets, including Western Europe and the US.

Mi casa es su casa

Mexico has succeeded in the US market in part because it makes auto parts and assembles cars rather than selling brands of its own, Peters said. Mexican manufacturing is not seen as a challenge to the American auto industry, which the US government has gone out of its way to defend, most recently through the bailout of GM and Chrysler following the financial crisis.

But the US government will probably take a much different view of China, where domestic brands account for some 40% of cars produced.

“If you want to engage in a massive competition between China and the United States in the US market – and this will happen, I’m sure this will happen – [it] would have huge political repercussions,” Peters said.

Politics aside, China would be at a disadvantage due to higher transport costs for trans-Pacific shipping and higher tariffs than those for NAFTA countries.

Chinese companies could follow the lead of Japanese and European carmakers that have already set up operations in Mexico to export to the North American market. Provided Chinese factories met NAFTA standards for sourcing a certain percentage of their materials and labor from within the free trade area, they can circumvent tariffs and other trade barriers. Great Wall Motors is already pursuing a similar strategy in Europe by opening a plant in Bulgaria as a backdoor to the rest of continent.

The challenge with pursuing new auto markets is it’s often an all-or-nothing strategy, said Klaus Meyer, an international business management professor at China Europe International Business School (CEIBS).

“You can’t just set up a car plant and turn out a couple of thousand cars,” Meyer said. “An efficient scale for cars is hundreds of thousands. So you have to be pretty confident you will succeed.”

That confidence has yet to manifest itself: Several major Chinese auto makers have announced plans to enter Mexico, but ultimately did not follow through. Geely Holding Group said in 2009 it would build a factory in Mexico that never appeared. Chery Automobile and SAIC Group have also announced major investments that have yet to be realized, Peters said.

FAW Trucks, a venture of the “big four” automaker China FAW Group, is one of the few Chinese firms that has stuck around in Mexico making commercial trucks (a previous FAW foray into making passenger vehicles failed). FAW’s export business is still in its initial stages, with the company exporting its first 10 or so trucks from Mexico to the US in November – a small but not insignificant accomplishment.

“It’s a joke in terms of volume,” said Peters. “But in terms of quality of processes, of organization, of distribution … this is the first very important step.”

Sipping a dark Belgian beer out of a glass chalice, Jacky Qian reflected on how drinking culture had changed compared to his parent’s generation. “My father doesn’t like this kind of beer. I tried to introduce him to some Guinness or Belgian beer,” said Qian, a Shanghai native. “It’s just too strong.” The older generation prefers the light, weak lager drunk in most parts of China, he said.

While that lager is often viewed as “Chinese beer,” it was only introduced to China in the early 20th century. Russians opened a brewery in Harbin around 1900 to supply workers building a railroad in Manchuria, and Germans began brewing a similar beer in Qingdao in 1903 to supply sailors. The dominant style ever since, that lager remains the only type of beer many Chinese have tried.

Qian regularly drinks the stronger, heavier stuff at Kaiba, a Belgian beer bar near his home in Shanghai’s Changning district. The variety of beers at the bar, about 70 in all, appeals to him, as does the culture – particularly that every Belgian beer is served in a special glass, he said. As a risk analyst at a life insurance company, Qian has the disposable income to pay RMB50 (US$7.87) for a Belgian beer, even though a Chinese beer would cost one-tenth of that.

“Imported beer doesn’t come cheap, so you have to reckon that we’re targeting the middle- and upper-class of society,” said Thomas Leclercq, CEO of Third Place China, a consulting company working to open a location of the Belgian Beer Café chain in Shanghai. “But it’s not the super rich that treat themselves to Belgian beer. You have a lot of people from the middle class who are becoming more well traveled and are willing to try stuff from abroad.”

Purveyors of Belgian beer hope it will gain the same recognition and status that German beers have had in China for many years, said Leclercq. Germany’s Paulaner Brewery, for example, opened its first restaurant and microbrewery in Beijing in 1992, and it now has 12 locations in China. Belgium-focused Kaiba, meanwhile, began in 2008 and now has three locations.

But Belgian beer culture is still far from garnering widespread recognition in China.

“If they ask me something about cocktails, I know they maybe came to the wrong bar; we don’t make a big selection of cocktails,” said Kaiba outlet manager Steven Wang. “Most of the Chinese customers coming in here don’t really know what this is about.”

Wal-Mart Stores in Chongqing was fined last month after local authorities discovered more than 60 tons of ordinary pork was fraudulently labeled as organic, priced as such and sold for two years. Authorities forced the US-based retail giant to shutter all 13 of its stores in the city for 15 days as punishment. Two senior executives were arrested and dozens more were detained. Within days, Wal-Mart Stores China CEO Ed Chan and another top executive resigned, marking the second major leadership shakeup after the COO and CFO stepped down abruptly in May this year.

This is the latest in a series of blows against Wal-Mart in Chongqing. The local government has punished the big-box retailer 21 times since 2006 for charges including food safety problems, mislabeling and false advertising.

The US$575,000 fine won’t make much of a dent in the US$7.5 billion in revenues the company generated in China last year. But Wal-Mart is aggressively expanding in China, and the bad publicity won’t help. The company had 328 stores in China at the end of last year, a number that has already grown to more than 350, and is trying to seize share from its French rival Carrefour – although Carrefour has also been the frequent target of fines.

Some commentators have argued that Wal-Mart and other firms are being targeted because they are high-profile and foreign. State media has also run stories highlighting minor food product problems at other foreign chains including KFC and McDonald’s. Recently, domestic exposes have shone light on the shoddy environmental practices of Apple’s contractors.

This campaign, therefore, may be an attempt to put product safety violations by domestic companies, most famously tainted milk that poisoned thousands of children, into context; this is not a problem exclusive to local brands. Authorities also need to convince Chinese consumers they are getting tough on safety.

However, the crackdown in Chongqing may also be a part of efforts to promote the “Chongqing model” by the ambitious Bo Xilai, Communist Party Secretary of the municipality and one-time head of the Ministry of Commerce.

Bo first grabbed headlines for his zeal cleaning up the local mafia, which included the seizure of some impressive stashes of firearms. He went on to launch other populist initiatives, including broadcasting “patriotic” television shows and setting aggressive targets for affordable housing by taxing state-owned enterprises.

Now he has turned to cracking down on food safety violations. Chongqing has already closed down 91 companies and revoked 602 production licenses. Wal-Mart may feel singled out, but it is not alone.