Last Updated:2016-01-06

By Geoff Raby 


Three years into President Xi Jinping's first five-year term, the shape of China under him is clear – 2015 has brought the consolidation of Xi's power and his stamp on everything from the economy to foreign policy. Paradoxically, Xi's firm grasp on power has reintroduced internal political risk as a heightened concern.  


For the past three years, Xi's anti-corruption campaign has been used both to restore the authority, and hence legitimacy of the Chinese Communist Party, and as a weapon to see off and cower his political opponents. He has been successful on both accounts. The anti-corruption campaign is here to stay as an integral part of Xi's overall political management. It is a journey without an end. 


This year a large number of provincial level officials, up to the giddy heights of provincial deputy party secretaries and governors, a raft of vice-ministers, and numerous middle-level officials have been exposed by the inquisitors of the party's feared Inspection and Discipline Committee. Accompanying this has been a spike in self-defenestrations by officials. 


The year is ending on something of a high note for the anti-corruption investigators. Following the government's multi-billion dollar intervention in the stock market after the August crash, up to a dozen senior CITIC Securities (formerly the China International Trust and Investment Corporation) employees have been arrested, and accused of insider trading. CITIC Securities head Wang Deming is also now reportedly in trouble.  


Late last week, one of China's richest private entrepreneurs also disappeared into the inquisitors' maws. Guo Guangchang, chairman of diversified investment group, Fosun, has joined at least half a dozen private entrepreneurs "assisting" with various investigations. Fosun like CITIC have considerable interests in Australia.  


And earlier this year, the glamorous and scandal-prone daughter of former premier Li Peng was publicly humiliated by being demoted and transferred to a minor job. The message is clear: no one is safe.  


A number of  "rights" lawyers have been arrested this year and many NGOs have come under much greater pressure as part of Xi's crackdown on civil society.   


The economy, however, is where Xi seems to be struggling. While having made a virtue out of necessity by describing current weak economic conditions as the "new normal", attempts to stimulate activity have had little effect.  


Three rounds of cuts to the Reserve Requirement Ratio (RRR), a cut to benchmark interest rates and fiscal stimulus through infrastructure and a variety of public spending programs have at best helped to arrest the slide in activity. 


Overhang in the property market, extensive losses among state-owned enterprises, and huge pressures to refinance local government and SOE corporate debt have all mitigated policy stimulus. 


Growth of about 6 to 7 per cent this year looks feeble compared with China's average growth rates over the past 30 years but it is still higher than almost all major economies in the world today. 


It is also occurring at a time of rebalancing the economy to a more consumption-led economy. Associated with this is deep structural change. 


Clumsy interventions 


In 2015, for the first time services will account for more than 50 per cent of GDP. Xi may also wish to claim credit for this, but market forces are largely driving it. 


Much less credit worthy, however, were the clumsy interventions in the stock market after it crashed following a government-stoked run up in unsustainable values, followed by a poorly executed attempt to devalue the renminbi by resetting its mid-point against the US dollar to discourage speculative capital inflow. 


After a determined beginning to the new wave or reforms focusing on SOEs and the financial sector (including the capital account) following the Third Party Plenum in 2013, the pace of implementation in 2016 has slowed appreciably.  


Financial sector reforms have largely removed controls on bank deposit and lending rates and brought greater openness in the capital account through experiments such as the Shanghai Special Free Trade Zone' stock connect with Hong Kong, which permits limited trading of stocks between the two exchanges. 


RMB liberalisation has, however, advanced apace this year with RMB settlement centres opening in more countries.  Last month's decision by the IMF to include RMB in its SDR basket of currencies was a significant achievement for Xi in terms of China's international prestige and, importantly, seen as such at home. 


It is in foreign policy that Xi has probably been most noticeable in 2015. Xi has ditched Deng Xiaoping's maxim for foreign policy, "Hide your brightness, bide your time", for a more assertive, active and creative foreign policy approach. 


This year the Asian Infrastructure Investment Bank was established and was oversubscribed with Europeans falling over themselves to join; his "One Belt, One Road" concept of linking China to neighbouring and distant countries via infrastructure investment has now entered the language; he had a subdued state visit to Washington and an exuberant one to Britain, followed by a conga line of European leaders visiting Beijing; and he stunned the region by meeting Taiwan's leader. 


Tensions with Japan and over the South China Sea remain, but with the former they have eased and with ASEAN are being balanced by a renewed "charm offensive". 


Xi's biggest moment of the year, however, was in early September when the nation stopped to watch the unprecedented military parade to mark the 70th anniversary of the defeat of Japan.  


By holding this unprecedented event, Xi's main message was not to the international community about China's recently acquired military might but to the domestic audience. It was that Xi was now completely in command of the country, he was its new autocrat and he would govern according to his rules.  


Meanwhile, all bets are off on the form and processes for his succession. It has indeed been a big year for Xi Jinping. 



Geoff Raby is Chairman and CEO of Geoff Raby & Associates and a former Australian Ambassador to China. 


This article first appeared in the Australian Financial Review: