Politically, Xi remains unchallenged, but is under high pressure to deliver. What the Chinese population cares about most, besides economic growth and opportunities, is Beijing’s social policies, such as reforms of the health, pensions or education systems. Xi has outlined a mix of new policies to provide better public services coupled with effective surveillance to contain discontent. If this mix proves “good enough” to maintain stability, Xi may have sufficient political power to extend his reign yet again at the 21st Party Congress. However, he will then be 73 years old and under greater pressure to reveal a path to an orderly succession. The party leadership will inevitably become preoccupied in one way or another with thinking about what comes after him.
The international sphere will be fiercely contested but continue to be dominated by the United States and its likeminded allies. Both sides share the perception they are in a great power rivalry that will shape the world for decades. But Beijing grudgingly accepts that – at least for now – the United States remains too powerful to be openly challenged. Both sides are trying to reduce their dependencies on the other, e.g. in technologies or critical supplies. But they are also making efforts to manage their competition to prevent the many brewing conflicts from escalating into an uncontrollable crisis that neither Beijing nor Washington wants.
The continuing rivalry between the two superpowers has a price for the international order. Institutions are weakened, even as most global institutions continue to follow the established rules and Western countries put up an effort to prevent China from changing them. Instead of broad international agreements, unilateral laws and mini-lateral agreements generate fragmentation. Frameworks such as China’s “Belt and Road Initiative”, the “Global Development Initiative” or the “Global Security Initiative” will continue to attract followers and partners in the Global South, but few will tie themselves exclusively to China. A welcoming attitude towards China‘s economic engagement is not necessarily mirrored in security cooperation.
As a military power, China is establishing itself as the most influential actor in its direct neighborhood. This is not enough to meet Beijing’s ambitions, but it helps expand and test its influence in the region. China may show more willingness to engage in regional military conflicts, e.g. over territorial disputes with India. China’s military build-up continues, with the aim of achieving dominance in the South China Sea and the Taiwan Strait in particular. Military pressure on Taiwan is increasing. Beijing uses its political, military and economic muscle to push other countries in the region to accept its ambition of “complete reunification”. At the same time, the United States is building its own coalition (e.g. with Japan, Australia, Philippines) to push back against Beijing.
Potential implications for Europe
As this is the “dynamic status quo” scenario, European governments face risks from volatile bilateral relations with China. Concerns include the politicization of economic relationships and supply chain dependencies. With the United States and China exerting substantial pressure, European states risk pursuing reactive policies rather than proactive policy making. This could lead them to overlook the opportunity that the “Shaky China” scenario presents; namely that there is still time, and room, for maneuvers to increase resilience, improve competitiveness, expand the mitigation toolbox and build alliances. European companies can pursue their China business strategies along recent trajectories (with signals about an increasingly constrained business environment already factored in). But they need to be aware of risks arising from more intense competition from Chinese companies, both in China’s market and third countries.