In mid-November the Communist Party of China (CPC) elected a new Politburo Standing Committee headed by General Secretary Xi Jinping, effecting Beijing's first major leadership transition in a decade.

Japan has just seen a major transfer of power as well, with the Liberal Democratic Party reclaiming the lower house majority it lost in 2009 and forming a new government under Shintaro Abe. One of the key tasks awaiting Abe as prime minister will be repairing relations with China; under Prime Minister Yoshihiko Noda, bilateral ties have frayed badly over the escalating Senkaku Islands dispute, and the fallout has seriously hurt Japanese businesses in China.

Across the Pacific, the US presidential election handed a second term to President Barack Obama, whose administration has taken a circumspect approach to China's rise. During one of the presidential debates, Obama characterized China as "an adversary, but also a potential partner in the international community if it's following the rules," [1] a message echoed by Secretary of State Hillary Clinton while in Australia on the eve of China's leadership transition.

"We welcome a strong and prosperous China that plans a constructive and greater role in world affairs," Clinton said, "but we also want to see China act in very transparent ways that respect international norms and standards." [2]

How will Beijing's new leadership deal with its two key rivals and potential partners in the coming years?

A number of Japanese commentators have speculated on the likely shape of Beijing's foreign policy in the Xi Jinping era, most of them basing their assessments on the past record of Xi and other figures on the reconstituted Standing Committee. Since the committee as a whole has the final say over national policy, it is natural to assume that the personal views of its individual members will have an impact on China's foreign policy going forward.

Yet it seems to me that internal and external exigencies are likely to trump personal ideology in setting a course for China's foreign policy in the next few years. As I see it, these internal and external factors will force the new leadership to take a basically cooperative approach toward the United States while maintaining its hardline stance toward Japan. In the following, I explain the thinking that leads me to this conclusion.

Playing It Safe

The first thing the new leadership team needs to do is consolidate its control of the party, the national administrative apparatus, and the military. Power struggles are a constant of human society, and the CPC is no exception; the world caught a glimpse of such internecine tension in the period leading up to the recent Eighteenth National Congress. There are bound to be opposing forces in the party that would take any opportunity to undermine confidence in the new leadership to advance their own political fortunes.

Faced with such circumstances, a new government will avoid any course of action that runs counter to the policies established under the former administration. Even if the previous leader has retired in fact as well as in name (instead of continuing to wield influence from behind the scenes), the new regime will play it safe and rely on the protection precedent affords rather than open itself up to criticism through any abrupt policy reversal. Certainly such caution was in evidence during the early years of Hu Jintao's regime.

Still, some observers have stressed the policy differences that distinguished Hu's regime from that of his predecessor Jiang Zemin. From the perspective of these analysts, the conspicuous presence of members of Jiang's faction on the newly elected Standing Committee might seem to augur imminent policy reversals, particularly given that Hu has relinquished his chairmanship of the Central Military Commission instead of holding onto that influential post for another few years. To my mind, however, Hu's decision to relinquish both offices speaks to his confidence that the "scientific development concept" and other core policies adopted during his regime are not in jeopardy under the new leadership.

In the area of foreign policy, the overall legacy of Hu Jintao has been an emphasis on cooperation. China and the United States built a remarkably close cooperative relationship over the course of Hu's 10-year regime. With a cooperative US foreign policy toward Asia under Barack Obama, these ties continued to progress, as seen in the success of the US-China Strategic and Economic Dialogue.

Given the aforementioned risks of early policy reversals, we can expect Beijing's new leadership to maintain Hu's policy of pursuing cooperative ties with the United States, at least for the next few years. Foreign Ministry spokesperson Hong Lei confirmed this assumption at his first press conference following the change in leadership. Asked about the future direction of China's foreign policy under the new leadership, he cited the report Hu Jintao submitted to the Eighteenth National Congress and declared unequivocally that China would continue along the path of “friendly cooperation.” [3]

Domestic Tightrope

The truth is that the most urgent political challenges facing the new government are domestic in nature, not foreign. Xi Jinping's regime must address a laundry list of festering internal problems that threaten China's long-term stability.

Domestic discontent has escalated over such issues as corruption and abuse of power among provincial officials, joblessness among the vast numbers of people migrating to the city to find work, and limited employment opportunities for college graduates, issues that have fueled a series protests and riots around the country. The biggest challenge facing Beijing's new leadership is grappling with these domestic issues. It is no accident that both Hu's aforementioned report and Xi's remarks at his first press conference as general secretary were devoted primarily to domestic affairs. And addressing such domestic issues requires a stable international environment for economic growth.

The CPC lists its top priorities as advancing modernization, achieving national reunification, and safeguarding world peace while promoting "common development." Of these three priorities, modernization—described in the preamble to the CPC constitution as the "basic task of the nation"—continues to head the list. When the CPC speaks of modernization, it means economic development. Economic development is considered the key to building a strong nation, a prerequisite both for national reunification and for peaceful development in cooperation with the international community.

Under this conceptual framework, the key goal of foreign and security policy is contributing to the goal of modernization by creating an international climate conducive to China's economic development—namely, a "harmonious world" in which countries can prosper together in peace. Cooperative relations with the United States, China's largest trading partner, are particularly important if the government is to promote continued economic development and focus its attention on domestic issues.

In short, from the perspective of promoting economic development and addressing domestic problems as well as that of avoiding internal criticism, the new regime has little choice but to adhere to Hu's basic policy of cooperation in foreign affairs.

Ramifications of Economic Growth

Of course, no matter how much lip service China gives to the principle of international harmony, its rise as an economic power inevitably poses a challenge to the existing global order and the nations that are its core members, including the United States and Japan.

Beijing's five-year plan for the period from 2012 to 2017 calls for economic growth averaging 7% per year. If sustained, a 7% annual growth rate would double the nation's gross domestic product in 10 years, and this seems to be what the Chinese have in mind. Hu Jintao's report to the Eighteenth National Congress calls for a goal of doubling both GDP and average per capita income in urban and rural areas over the decade extending from 2010 to 2020.

Many analysts outside of China have warned that the nation will be hard-pressed to maintain such a high level of economic growth in the face of a dwindling labor force and a stagnant global economy. But in my estimation, domestic demand fueled by the migration of as many as 200 million more Chinese from the countryside to the cities has the potential to power 7% growth for at least another decade.

The International Monetary Fund's World Economic Outlook also forecasts robust economic growth for China over the next few years, estimating that in 2017—the last year of Xi Jinping's first term in office—the GDPs of China, the European Union, and the United States will be roughly equal in terms of purchasing power parity (Figure 1).

The continued expansion of the Chinese economy will not merely facilitate a commensurate growth in China's military power but also necessitate changes in the international economic order. Most of the rules currently governing the international economic regime were developed under the leadership of the United States and the European Union. As the growth of the China's huge market increases Beijing's leverage in international economic negotiations, we are likely to see more situations in which the United States and other major economic powers are forced to compromise.

In his November 15 press conference, Xi Jinping hinted at China's growing clout when he noted that “just as China needs to learn more about the world, so does the world need to learn more about China.” As a general principle, China will continue to pay homage to the ideals of harmony and cooperation, but when it comes to specifics, it will not submit meekly when its interests conflict with those of other major countries, such as Japan or the United States. This is the context for the warning implicit in President Obama's description of China as "a potential partner in the international community if it's following the rules."

Economic Vulnerability

That said, market size is not the only factor determining a country's clout in economic negotiations. Experts also stress the element of economic vulnerability, that is, the potential impact of external shocks and pressures on a nation's economy. [4] The less vulnerable an economy is, the better it can stand up to external pressures, such as economic sanctions. The ability to withstand such pressures is assumed to give a country greater leverage in international economic negotiations.

Economic vulnerability is a relative concept assessed by a combination of indicators, especially foreign trade and industrial structure. While the Chinese economy is fast approaching the United States and the EU in terms of market scale, it remains substantially weaker than either when assessed by these key indicators of vulnerability.

To begin with, the Chinese economy is extremely dependent on foreign trade. China's annual trade volume stands at about 50% of GDP—roughly twice the trade dependence of the United States, the EU, or Japan (Table 1). This picture is unlikely to change significantly over the next five years.

China's industrial structure is another source of economic vulnerability. Manufacturing occupies a disproportionately large share of the total economy. Manufacturing and other sectors highly vulnerable to adverse global pressures, such as mining and finance, account for about half of China's GDP (Figure 2). The United States is considered more economically resilient because it has a diversified industrial structure centered on the service sector, which is relatively immune from direct external shocks.

Despite the size of China's market, this economic vulnerability will make it difficult for Beijing to insist on getting its own way whenever it comes into conflict with the United States or the EU over the rules of the international regime. Instead, China will attempt to maximize its advantage within the existing framework and, when negotiating new rules, seek compromise solutions that accommodate the interests of the United States and the EU.

Antagonism toward Japan

As we have seen, the imperatives of avoiding internal criticism, promoting economic growth, and addressing domestic problems all militate against any major departure from Hu Jintao's basic policy of international cooperation over the next few years. I have also suggested that the new regime is likely to be particularly assiduous in maintaining and extending the cooperative ties established between China and the United States under Hu.

Unfortunately, the dynamic is quite different where relations with Japan are concerned. Given the need for the new leadership to navigate a politically safe course, we can expect little improvement in China's attitude toward Japan. Deep currents of anti-Japanese nationalism in China make the government's dealings with Japan a touchy political issue at home. Indeed, efforts to improve relations with Japan can leave Chinese leaders open to potent attacks by their political opponents. In the 1980s, such attacks contributed to the fall of General Secretary Hu Yaobang.

Hu Jintao's government started out with the aim of improving relations with Japan, but as the dispute over the Senkaku Islands escalated, his regime shifted to an uncompromising hardline position. Not even Premier Wen Jiabao—a seasoned diplomat who has worked hard to thaw relations between China and Japan—could resist the tide of public indignation over the Japanese government's purchase of the islands. "The Diaoyu [Senkaku] Islands are an inalienable part of China's territory," Wen declared last September, "and the Chinese government and its people will make absolutely no concession on issues concerning its sovereignty and territorial integrity." [5]

Xi Jinping has come to power in the midst of this fierce wave of anti-Japanese sentiment triggered by the Senkaku controversy. The smallest move to accommodate Japan—on this issue, at least—could leave the new regime open to political attacks and a major backlash. Under these circumstances, there is scant cause to hope for improvements in diplomatic ties going forward.

Coercive Tactics

As suggested previously, China is expected to emerge as a market on a par with the United States and the EU within the next five years, and the government can be expected to use its growing economic leverage when negotiating the rules governing international commerce.

Given the high economic stakes involved, we can also expect Beijing to take a tough position on any territorial disputes or issues affecting its offshore rights in the region. The kind of behavior China has displayed in recent years as it maneuvers for broader control over the South and East China Seas is unlikely to subside.

Nor can we discount the possibility that Beijing will use economic coercion to influence the political behavior of countries heavily dependent on their economic ties with China. Indeed, in recent years Beijing has shown a disturbing inclination to use the growing economic "interdependence" between Japan and China as a political weapon.

In the fall of 2010, after the Japanese arrested the Chinese skipper who had rammed his trawler into several Japan Coast Guard vessels off the Senkaku Islands, the Chinese in effect halted exports of rare earth metals to Japan. During the more recent escalation of the Senkaku dispute, it was reported that Chinese customs officials were deliberately delaying Japanese imports.

Of course, apart from violating the rules of the World Trade Organization, such punitive trade restrictions are a double-edged sword that stands to hurt the Chinese economy as well. For these reasons, it seems unlikely that China's new leadership will maintain blatant trade restrictions for any length of time. But we should not be unduly surprised if Beijing resorts to more subtle forms of economic coercion over its trading partners in the region, including Japan.

[1] Third presidential debate, Boca Raton, Florida, October 22, 2012.

[2] "Hillary Clinton soothes China on alliance," The Australian, November 15, 2012.

[3] "Foreign Ministry Spokesperson Hong Lei's Regular Press Conference on November 15, 2012," Ministry of Foreign Affairs of the People's Republic of China, http://www.fmprc.gov.cn/eng/xwfw/s2510/2511/t989886.htm .

[4] Daniel W. Drezner, All Politics Is Global (Princeton, NJ: Princeton University Press, 2007), 33-39.

[5] "'Absolutely no concession' on Diaoyu Islands, says Chinese premier," SINA, September 10, 2012, http://english.sina.com/china/2012/0910/505060.html