China 2012: A Year in Review by Malcolm Moore

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During this week, China Briefing is featuring a series of specially-commissioned articles from prominent China-based writers regarding their thoughts on the key developments in the country during 2012, and what lies ahead in 2013. Today’s article is written by Malcolm Moore, the Beijing correspondent of the Daily Telegraph. The complete “China 2012: A Year in Review” series can be viewed here.

Dec. 24 – The year of the dragon, according to Chinese belief, is often unpredictable and bewildering. And so it has proved. We saw extraordinary escapes, unexplained disappearances, the downfall of a prominent politician, and riot-causing regional spats.

There were moments when it seemed as if the economy might come off the rails. At other times, it looked as if the Communist party might not be able to agree on its once-in-a-decade leadership reshuffle. If they looked to history, China’s leaders would not have been too surprised by the how the year played out. Previous dragon years have seen a British invasion of Lhasa, a civil war after the collapse of the Qing Dynasty, war with Japan, the Tangshan earthquake and the death of Chairman Mao.

Still, it was a shock when, less than a fortnight after this year’s Chinese New Year holiday ended, the police chief of Chongqing, Wang Lijun, tried to defect to the United States, clutching documents that incriminated one of the Party’s most senior leaders, Bo Xilai.

The incident, which saw Wang spend the night in the consulate in Chengdu before being escorted on a plane to Beijing, set in motion a series of murky internal Party battles that took months to play out. In the end, Bo Xilai was toppled and his wife was convicted of the murder of Neil Heywood, a 42-year-old British fixer and family friend. It will be a long time before a member of China’s Politburo allows another foreigner to be a part of his inner circle.

Wang himself was sentenced to 15 years in prison for complicity in Heywood’s murder, trying to defect, illegally bugging other Communist party leaders, and taking bribes. As we move into the new year (February will see the “Year of the Black Snake, a much calmer year of renewal, if you believe the Chinese horoscope), we are still waiting for Bo himself to go on trial.

If the Party was suffering internal strife, its relations with the United States were also stretched to the limit when Chen Guangcheng, a blind activist, managed to give his guards the slip on April 22, jump over several walls, crawl across miles of wheat fields with a broken foot, and rendezvous with friends who drove him to the U.S. embassy in Beijing.

The embassy risked the wrath of the Party to shelter him for several days before a deal was struck that would allow Chen to remain in China unmolested. However, as soon as he stepped out of the embassy for treatment in Chaoyang Hospital, Chen had a change of heart and asked to go to America. After another round of fraught negotiations, and with the world’s media camped outside his hospital room, he was allowed to go with his family to study in New York.

In the long run, however, China’s relationship with the United States appears unharmed by the debacle. Indeed, it has been a record year for Chinese companies doing deals in the United States.

Excluding a US$4.2 billion deal for the aircraft leasing firm International Lease Finance Corporation, that is still in play, Chinese firms have bought US$6.5 billion worth of U.S. assets. Notably, Dalian-based Wanda Group bought AMC, the cinema group, and is now looking at other American hospitality companies.

Relations, and business, with Japan, however, have soured badly. A decades-long, but slow simmering, dispute over the ownership of the Senkaku or Diaoyu islands, a chain of rocks in the South China Sea, boiled over when Japan announced plans to nationalize some of the islands.

In August, riots broke out in several Chinese cities including Beijing, Shenzhen, Chengdu and Shanghai. In Xi’an, a Chinese man was beaten into a coma for owning a Japanese car, instantly collapsing consumer demand for Japanese automobiles.

The tension has yet to abate and Japanese companies are likely to still suffer in the Chinese market going forward into next year, although a few have reported receiving special tax breaks by local Chinese governments who depend on them for jobs and revenues.

China’s increasingly assertive stance in the South China Sea, masterminded by Xi Jinping himself, also saw riots take place in Vietnam and the Philippines as Chinese ships moved to enforce their claims.

The distractions did not help the economy, which wilted in the first half from restrictions on the property market and because of poor demand for Chinese goods from Europe and the United States. But, unlike in 2009, the government did not step in with a stimulus plan. All that was required was a suggestion that stimulus might be offered to renew corporate confidence.

The outcome, however, is a general recognition that the days of double-digit growth in the Chinese economy have come to an end, and a promise by leaders that they will refrain from the heavy investment that has driven the economy in recent years.

After Xi Jinping went missing without explanation for a fortnight, in the end he emerged to take the helm of the Party and has lost no time in demonstrating a very different style of leadership.

As we move into 2013, an anti-corruption campaign is likely to claim several more scalps. That spells bad news for restaurants, property developers, nightclubs and alcohol producers. Liu Qibao, the new head of the Publicity Department, went missing for a week while his former deputy in Chengdu, Liu Chuncheng, became the first major victim of the corruption probe.

Also on the horizon is a wholesale revamp of government ministries, with some rumors that bureaucracy could be heavily slashed, with the State Council shrinking by a third.

The Population Planning Commission could be cut, potentially paving the way for reform of the one-child policy, the People’s Bank of China may become independent, the Rail Ministry may be folded into the Transport Ministry, and the powers of the National Development and Reform Commission may also be diminished.

If all the rumors prove true by next March, when the National People’s Congress convenes, it may have been the most dramatic Year of the Dragon on record.

Malcolm Moore is the Beijing correspondent of the Daily Telegraph. He arrived in China in 2008 and was previously based in Shanghai. He has also worked for the paper in Rome and as its Economics correspondent.