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FACTBOX - Key political risks to watch in China
BEIJING (Reuters) - China's ruling Communist Party is grappling with a leadership transition while also trying to deal with destabilising scandals, economic uncertainties and outbursts of unrest, but for now economic growth and firm controls are likely to avert serious ructions.
Two high-profile cases - those of former rising political star Bo Xilai, and blind activist Chen Guangcheng - have been deeply embarrassing for Beijing, and refocused world attention on human rights, the rule of law, and corruption in elevated political circles.
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Chinese President Hu Jintao and Premier Wen Jiabao are due to give up their main Communist Party posts in late 2012 and their state posts in early 2013, making way for a new leadership generation likely to be led by current the Vice President Xi Jinping, who is virtually certain to replace Hu.
In early September, Xi skipped meetings with visiting leaders and disappeared from public view, an absence which kicked off wild rumours and also raised serious questions about why Beijing was not more forthcoming about the health of its president-in-waiting.
Many of China's top leaders continue to travel and attend meetings, suggesting that they are not consumed by the crisis.
Most other members of the nine-member Standing Committee - the Party's decision-making core - are likely to retire in late 2012 as well.
The politics of determining who will fill those vacancies is increasingly preoccupying decision-makers, slowing policymaking and deterring the government from taking significant decisions.
Chinese elite politics has been largely bound by the norms of conformity and unity around a leader, and competition among these contenders is unlikely to break out into open feuding or trigger major policy shifts.
Those norms have been shaken by the ousting of Bo Xilai, who had been a possible contender for a place in the Standing Committee until his dismissal from the party secretaryship of Chongqing in southwest China in March.
Bo's downfall, which has unleashed division and uncertainty as the leadership transition approaches, came after his wife became a suspect in the murder of British businessman Neil Heywood, a crime for which she was later tried and given a suspended death sentence.
The case has brought great international attention on wealth, corruption and wrongdoing among China's political elite. Bo could also face criminal punishment later, but first the party leadership must decide on how to deal with him.
Still, the growing public prominence of Vice President Xi and Vice Premier Li Keqiang indicates they are increasingly sure of succeeding President Hu and Premier Wen respectively, and preparations for the Party congress that will install the new generation of leaders later this year have continued.
One key issue will be whether Hu will remain chairman of the Central Military Commission, which controls the People's Liberation Army. Staying on would give him more sway over his successors.
What to watch:
- Which emerging leaders make substantive policy statements and announcements. That can be a signal of their prospects and likely areas of authority.
- Political and ideological rivalry among aspiring leaders, and signs the Bo Xilai scandal is not an isolated case, as the Communist Party claims. Rivalry is likely to remain constrained, but serious economic problems, political scandals or external shocks could heat up the competition.
SOCIAL UNREST - ACTIVISTS, ETHNIC UNREST, ECONOMY
China's economic growth rate slowed for a sixth successive quarter in the second three months of 2012 to 7.6 percent, its slackest pace in more than three years, reinforcing the need for more policy vigilance even as signs emerge that action taken so far is beginning to stabilise the economy.
The central bank surprised markets in June with a cut to benchmark borrowing rates, its first since late 2008, and in early August it said it would intensify its monetary policy fine-tuning in the second half of the year and improve credit policy to help the real economy.
China's consumer inflation dipped to a two-year low of 3 percent in May while economic activity remained weak, reinforcing expectations that further policy easing could be in the pipeline to head off a sharper slowdown in the world's second-largest economy.
A Reuters poll in July showed economists expect the central bank to cut both lending and deposit interest rates by 25 basis points in the third quarter.
The case of blind legal activist Chen Guangcheng has refocused world attention on China's human right record, and its restrictions on dissent.
Chen's audacious escape from house arrest in rural eastern China in April and subsequent six-day stay in the U.S. embassy caused huge embarrassment for China, and led to a serious diplomatic rift while U.S. Secretary of State Hillary Clinton was visiting Beijing. He was allowed to leave China for the U.S. in May, a move that signalled the end of the diplomatic crisis.
Broadly speaking, The Chinese government fears social unrest could escalate into big protests and threaten its authority.
The most widespread sources of rancour are land confiscations and home demolitions for development, price rises and corruption.
Most outbursts are small and the chances of mass unrest challenging Party rule soon are scant. But a protest in Wukan Village in southern China in late 2011 showed that even these local outbursts can attract widespread attention and test the ability of officials to defuse discontent.
The far western regions of Tibet and Xinjiang also remain tense. In Tibet, there has been a string of self-immolations and protests challenging Chinese religious controls.
Such pressures encourage a mixture of tough security and aversion to policy gambles.
What to watch:
- Protests and strikes that, while local, put the government on edge.
- Flare-ups of ethnic discontent.
- Chinese government efforts to contain sources of protest, which could also affect companies, especially Internet and telecoms ones.
- Economic data, and how the central bank and investors respond to it.
The disputed South China Sea, where China, the Philippines, Taiwan, Brunei, Vietnam and Malaysia all have competing claims, has become Asia's worst potential military flashpoint.
China's claims encompass almost all its resource-rich waters, and it is locking horns, even if at the rhetorical rather than military level, with the United States more frequently over the area.
In August, the Communist Party's top newspaper telling Washington to "shut up", soon after the Foreign Ministry condemned a U.S. State Department statement that said Washington was closely monitoring action in the waters.
China and the Philippines only recently stepped back from a months-long standoff at the Scarborough Shoal, a reef near the Philippines in waters they both say are theirs, and at the start of July China's top newspaper accused the Philippines of plotting to deliberately stir up trouble.
At the Association of Southeast Asian Nations' (ASEAN) meeting in July, rifts over the South China Sea prevented the group's foreign ministers from issuing a communique for the first time in its history.
In September, tensions between China and Japan suddenly flared up over a small group of disputed islands, an episode which threatens to disrupt relations between Asia's biggest economies. Japan said it had bought the disputed islands in the East China Sea from a private Japanese owner, an act that Beijing called a violation of its sovereignty. ID:nL3E8KD23K]
Meanwhile as the Syrian crisis drags on, China and Russia have vetoed two Security Council resolutions criticizing the Syrian government and threatening it with possible U.N. sanctions in the wake of deadly attacks on opposition groups by troops loyal to President Bashar al-Assad.
Russia and China have opposed international interference in Syria and argued that a domestic solution to the bloodshed there is possible, but Beijing has repeatedly stressed that it wants to work with the Arab League to find a solution.
The tensions with Arab states are most unlikely to hurt China's access to Middle Eastern oil, but Beijing could find its diplomatic credit in the region weakened.
What to watch:
- Rhetoric and military manoeuvres in and around the South China Sea. While none of the countries involved wants a war - and none of China's Asian rivals could hope to challenge it militarily - there remains the risk of errors leading to confrontation, and the overall buildup of arms in the region.
- Ties with Japan, and whether there is an anti-Japan reaction in China, most likely to manifest itself in boycotts of Japanese goods. (Editing by Daniel Magnowski)
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