The revelation that China plans to build its first aircraft carrier to boost its maritime power, coupled with other demonstrations of greater political assertiveness, has important implications, including for macroeconomic management. In the coming year, China’s leaders face big decisions as signs of overheating of the economy become apparent, and with increasing pressure to reboot the country’s development model. But politics in China mean responses to these challenges will be enigmatic and uncertain.
Growing intolerance of domestic opponents, and a prickly posture in the face of perceived foreign ones, are not unique to China, but they have constituted an Achilles heel in its long history. China’s recent shift in attitude could be related to the leadership transition, factional struggles in the Communist party, growing self-confidence or rising social unrest. But these can all be slotted under deep-seated insecurity and intransigence.
Neither is auspicious when China has to deal with rising cyclical and credit inflation, and the call for economic transformation. Both are liable to weaken the resolve to pursue change that will be disruptive in the short term, but harder if deferred.