Few changes likely when Xi Jinping takes over

Xi Jinping, China's likely next president, is set to takeover in the coming months as the country makes a significant political transition. But it remains to be seen whether a change in political leadership will change China's relations with other countries or even its domestic policies.

This year is seen as vital to China because of the leadership change. But the changes to the leadership are not transparent with all decisions being made behind closed doors.

It makes analysing the economic future all the more difficult. Nonetheless many financial analysts are watching closely at every move China is making, especially since new figures showed the country's growth slowed to 8.9%.

Last month the World Bank warned that the country faced problems if it did not make changes to its economic system, industrial regulations and social welfare [tvnewswatch: World Bank warns China on growth].

Speaking today [Tuesday 13/03/2012] on Bloomberg, George Magnus, a Senior Economic Adviser to UBS Investment Bank, reiterated the importance of making such changes, saying that "the model that catapulted China to what it is now is flawed and needed a reboot."

The new leadership will determine how China defines itself, Magnus observed, but he said he was somewhat pessimistic about any swift political change. "After the new leadership is installed it may take up to a year before stability is established within the party, so I'm not optimistic," Magnus said.

Even before the leadership transition takes place, there are already signs of worry in economic circles.

China's trade balance plunged $31.5 billion into the red in February as imports swamped exports to leave the largest deficit in at least a decade and fuel doubts about the extent to which frail foreign demand or seasonal distortion drove the drop [MSNBC].

The world's second-largest economy saw the biggest trade deficit last month in at least 22 years, the weakest January-February factory-production gain since 2009 and retail sales below the median economist estimate, according to official government data published recently [Business Week].

Meanwhile a trade war is beginning to brew between China and a number of countries concerning restrictions China has placed on the export of so-called rare earth metals, much used in modern electronics [tvnewswatch: China tightens up on rare earth production]. After a long running dispute, the US is set to file a case against China at the World Trade Organization challenging its restrictions on the much needed commodity. The European Union and Japan are also expected to support the US in its case [BBC].

But the move was not welcomed by China who, by way of an article published by Xinhua, said that the decision to bring a lawsuit against China was "likely to hurt bilateral trade ties and trigger a backlash from China instead of settling the rift."

The move adds to pressure the US is piling on China  during an election year. Obama has already called for efforts to help balance the trade deficit it has with the Asian nation and allow the Chinese currency to appreciate, something which Beijing still resists [Bloomberg].

The Xinhua article also attacks past US policy decisions and says, "Past experiences have shown that policymakers in Washington should treat such issues with more prudence, because maintaining sound China-US trade relations is in the fundamental interests of both sides."

Maintaining sound relations is of course important, but the language expressed by China seems to indicate that even with a change of leadership, the future will remain just as frosty between East and West.  [Pictured: Xi Jinping. Playing cards courtesy of MostWantedChinesePlayingCards]

tvnewswatch, London, UK