Ho hum. So China’s economy grew by more than 10% in 2006 for the fourth year in a row. Doubtless this year, it will grow by another double-digit figure, due in no small part to the fact that the Communist Party will be meeting to choose the leadership at the end of the year to last until 2012.
If you track China’s economic growth after each of the five-yearly party congresses, it invariably remains strong. Hu Jintao and his cohorts are hardly likely to launch into a second term by allowing the economy to founder – not while they have so much money to keep it chugging along.
More of the same makes for a pretty boring story, right? Fat Dragon, though, thinks there will be things of interest to be found beyond the headline macro numbers.
Politics will move to the top of the agenda this year and stay there into 2008 as the restructured Politburo settles in. Trade tensions with the US and also the EU, already a permanent fixture, could be accentuated by a sour mood in Washington.
For all the chatter from top leaders about the "top priority" being a reduction in the trade surplus, the imbalance will almost certainly swell this year. In China’s favour is the fact that anyone sensible realises that little can be done in the short term.
There are also many winners created by the present set-up – corporate America and US consumers too – that may be happy for it to go on.
The same cannot be said for the environment. An issue of genuine global interest, it also represents an explosive test of the central government’s will and power. The State Environmental Protection Agency (SEPA) has traditionally been a weak ministry with little power outside of Beijing. As long as local officials were judged by how much their economies expanded and little else, there were no incentives in the system for this to change.
SEPA has the power to embarrass through publicity but this has its limits.
At the start of 2005, it named a number of large polluting power stations and ordered them to close. Provinicial governments made the right noises in public to shut up the media, shut down the plants temporarily, and shortly after re-opened.
SEPA tried to do something similar in January this year, "naming and shaming" about 80 offending plants, including power stations operated by the big four power producers. Once again, producers promised closures – just not immediately for fear of creating power shortages that would damage the local community.
The result of this stand-off will be an important litmus test of whether the power balance has shifted at all towards a genuine enforcement of environmental regulations. If not, then Beijing’s rhetoric will be exposed as hot air, and there will be PR consequences both home and abroad.
The government is already missing its target set under the 2006-10 Five-Year Plan to increase energy efficiency by 4% every year.
Activists militating against industrial pollution in their own backyards are also citing Beijing’s rhetoric in their campaigns. There was always going to be blowback for the government in lifting the bar on the environment – but they may now be concerned that this will turn into a full-force gale.