China marks 60 years of Communist rule on Thursday, with the country enjoying unprecedented global economic and geopolitical influence but still facing several challenges.
Following is a summary of key risks and issues to watch:
* GOVERNMENT STABILITY
China's government has so far maintained widespread popular support without major political change. Predictions that the global crisis could spark widespread unrest among laid-off workers have not materialised. Outbreaks of unrest have remained localised, and ethnic tensions in Tibet and Xinjiang have not seriously threatened stability. Calls from some activists and intellectuals for greater openness and democracy have not so far gained much popular traction. But China's political stability is a crucial issue for global markets, and any change to assessments of stability would have a major impact.
Key issues to watch:
— Signs that the economic slowdown is impacting government popularity. China has weathered the global economic crisis relatively well, but many Chinese have nevertheless faced increased hardship, and millions of workers in cities have been laid off. So far there is no sign of widespread anti-government sentiment because of the slowdown, but it remains a risk.
* TRADE AND CURRENCY DISPUTES
Simmering disputes with the United States and other nations over trade barriers and the level of the yuan always have the potential of escalating into a more serious crisis. While most analysts believe that both Beijing and Washington have too much to lose from a major escalation of trade and currency disputes, a hardening of attitudes would have a global economic impact.
Key issues to watch:
— The rhetoric from Washington and Beijing. Both sides want to avoid any serious economic dispute but also want to protect their domestic industry and maintain popular support at home. Signs that their positions are hardening would hurt markets.
— How disagreements are handled. The imposition of trade barriers usually results in retaliation from other nations. The key issue is whether a tit-for-tat spiral of protectionist measures gets out of hand, or whether careful diplomacy stops small-scale disputes from escalating and doing serious damage.
* SECURING STRATEGIC SUPPLIES
China has long been scouring the globe for energy and commodities to feed its economic growth, and has sought to secure strategic long-term supply deals. Its resource needs have major long-term implications for commodity and energy prices. And across the world, China is not just buying raw materials but is seeking to invest in countries and companies that produce them. This has transformed China's global economic and political role — and many other nations are getting worried.
Key issues to watch:
— Reaction to Chinese foreign investment. The U.S. decision to block CNOOC's takeover of Unocal on national security concerns, and the acrimonious aftermath of the collapse of Rio Tinto's deal with Chinalco, demonstrate how political issues may undermine China's economic aspirations. Markets will be watching to see if more major deals are blocked — and how China responds.
— Attitudes to China in developing world. Chinese investment has given a boost to many developing economies, but there are also signs of a backlash emerging in some countries.
* THE ENVIRONMENT
China is central to efforts to win agreement on fighting climate change. Beijing has pledged "carbon intensity" over the decade to 2020, but also says economic development must come first and developed nations should bear most of the responsibility for reducing global emissions. China's rapid growth is also causing a host of other environmental problems.
Key issues to watch:
— China's position on emissions. Markets will watch if China can agree a sensible emissions policy without stifling growth.
* CORRUPTION AND ACCOUNTABILITY
Corruption is an issue both for foreign investors in China and for national stability — it has the potential to become a focus for social unrest if it is not adequately tackled.
Key issues to watch:
— Corruption estimates. Investors will be watching to see whether China rises or falls in corruption perception rankings.
