It has not been a good month for China.
On July 12, an international court of arbitration at The Hague handed the Philippines a huge victory over China in the struggle over the South China Sea. A few days before that, South Korea decided to go forward with the deployment of the US Army’s Terminal High Altitude Area Defense System (THAAD), a move that Beijing has consistently opposed.
And then there’s the economy. Last summer’s stock market crash in China fueled speculation that the country would experience a recession in 2016. That didn’t happen. In the second quarter of this year, the Chinese economy posted 6.7 percent growth, down from the double-digit growth spurts of the 2000s but still respectable.
Still, this number is deceptive. The state has been investing heavily into the economy to keep growth rates stable. In 2011, private sector investment was growing at around 40 percent. For the first half of 2016, it was a mere 2.8 percent. To make up the gap, the Chinese state has poured money into infrastructure development. Such a pump-priming strategy is sensible, but China will also likely increase its military expenditures after the decision on THAAD and the ruling at The Hague. Large outlays on guns and butter are not sustainable in the long run.
None of this is good news for Chinese President Xi Jinping. China has long been hoping to secure as much of the South China Sea as possible through its “nine-dash-line” policy, which has included the transformation of rocks into islands and the aggressive challenge to the territorial claims of other countries in the region. The Philippines brought suit against China under the terms of the UN Convention on the Law of the Seas. The Hague Tribunal ruled against China’s expansive definition of its sovereign control of sea and declared that the modified rocks do not qualify as islands.
The Hague ruling has produced an enormous – and state-encouraged – nationalist backlash within China. But this short-term boost for Xi can’t obscure the growing unease in political circles.
In March, an anonymous letter by “loyal Communist Party members” urged the premier to step down. Many in the Party are unhappy with Xi’s anti-corruption campaign. And reformers have watched as the state has shut down their media outlets, including most recently the monthly magazine Yanhuang Chunqiu.