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THIS WEEK:

This special New Year’s edition of China 5 features insights from the Center for China Analysis’s new report, China 2025: What to Watch.

1. Internal Tensions Within the Party

What Happened: Xi’s successful concentration of power and harsh Party discipline have greatly tightened control over the political system. This has heightened cadres’ sense of insecurity, limited their autonomy, and reduced incentives to effectively fulfill their governance and development responsibilities. Xi’s economic policies have also made it harder for cadres to amass personal fortunes. 

A Difficult Balance: Xi Jinping’s leadership has struggled to tighten political control over the governing elite while at the same time providing incentives for them to promote economic development and effectively carry out their governance functions.

Managing the Party: Elite promotion and skillful personnel selection have greatly contributed to the Xi regime’s political and policy achievements. He and his leadership have unleashed powerful anticorruption campaigns and strategically executed regular leadership reshuffles across various levels of the Party-state hierarchy to facilitate elite circulation. 

Why It Matters: Competition for power will greatly shape the political landscape. Combined with Xi’s own political considerations, it will drive elite purges and make the politics of internal party governance and cadre management more volatile in 2025.

By Guoguang Wu, Senior Fellow on Chinese Politics, Center for China Analysis

Learn More: Read Guoguang’s essay on how “Internal Party Governance Challenges Will Intensify” in China 2025: What to Watch.

2. Beijing Will Face a New U.S. Administration

What Happened: The new Trump administration appears poised to revive hardline trade policies targeted at China: higher tariffs, stricter export controls, and more intense scrutiny of technology investments in the United States. This could spark a major confrontation.

Uncertainty Looms: In the run-up to the U.S. election, Chinese policymakers and analysts were unsure how literally to take the Trump campaign’s threats. Beijing’s bureaucracy and academic institutes considered different responses in light of uncertainty about Trump’s ultimate goal.

The Noise: It will be challenging for China’s leadership to discern consistent signals emanating from Washington amid the “noise.” Each side has different views of the other’s relative position, with many in Washington believing that Beijing’s is weak.

Why It Matters: Whether the U.S.-China relationship remains intact will depend on whether China perceives U.S. actions as setting the stage for a deal or concludes that the Trump administration’s aim is to pursue unilateral decoupling. More broadly, China’s strategy toward the United States will depend on multiple factors that go beyond trade. 

By Rick Waters, Honorary Senior Fellow, Center for China Analysis

Learn More: In China 2025: What to Watch, Rick explains why “Beijing Will Struggle to Manage Relations with the New U.S. Administration.”

3. Pressure Builds on Public Health System

What Happened: China’s healthcare system did not emerge from the COVID-19 pandemic unscathed. The confluence of heightened chronic disease incidence, demographic headwinds, and domestic policy challenges has brought it to the edge of functionality.

Under Strain: During the pandemic, patients were strapped with massive medical bills as the national insurance system struggled to bear the costs of China’s zero-COVID apparatus. The healthcare system’s financial strain has become a top priority for government reform.

Restoring Trust: The pharmaceutical industry remains one of the few sectors with high growth potential for foreign businesses in China. Beijing will attempt to implement reforms that accelerate foreign drug registration and clinical trial access.

Why It Matters: Restoration of public trust and confidence in the healthcare sector is paramount. Failure to achieve this would likely inflame public resentment, undermine faith in government services, and even inspire intermittent protests against the health system. 

By Bob T. Li, Honorary Senior Fellow on Global Public Health, and Patrick Beyrer, Research Associate on Global Public Health, Center for China Analysis.

Learn More: Bob and Patrick analyze how “China’s Public Health Challenges Will Present Risks and Opportunities” in 2025 in China 2025: What to Watch.

4. Major Fiscal Reforms Are Needed

What Happened: The Third Plenum in July 2024 finally promised serious fiscal reforms. These had become urgent in the wake of the property downturn and the economy’s lackluster post-COVID performance, which left local governments strapped for cash and deep in debt.

Three Red Lines: Under pressure from the pandemic and attempts to control the property sector, government revenues as a share of GDP declined sharply in 2024. Local governments are not willing to spend because of their debt burdens, and signs of fiscal distress have emerged, such as cuts in salaries and payment arrears.

Hopeful Signals: The resolution of the Third Plenum of the 20th Central Committee called for better macroeconomic management, anticyclical policies, and fiscal and tax reforms, as well as “improving the income distribution system” and “the social security system.”

Why It Matters: China’s fiscal system is in dire straits. A key question is whether the reforms will go far enough to turn fiscal policy into a powerful tool for resource allocation, economic stability, and income distribution.

By Bert Hofman, Honorary Senior Fellow on Chinese Economy, Center for China Analysis

Learn More: Read Bert’s essay, “Significant Fiscal Reform Initiatives Are in the Pipeline” in China 2025: What to Watch.

5. Climate Action at a Critical Crossroads

What Happened: A survey by the Asia Society Policy Institute has found that China must cut 2023 greenhouse gas emissions by at least 30% by 2035 to limit global warming to 1.5 degrees Celsius. If China can continue to deploy clean energy at the current rapid pace, it can achieve meaningful emissions reductions by this date. 

Changing Priorities: Geopolitical tensions have fueled skepticism about the value of international cooperation, a critical condition for sustainable global progress on climate action. The rightward swing in recent U.S. and European elections has reinforced China’s view that climate change is no longer an international priority. 

Domestic Risks: A troubled relationship with the West has prompted Beijing to pivot back to coal, a cheap source of baseload energy that can be supplied domestically. A major risk is that policy inertia and conservative thinking prevent Beijing from capitalizing on the progress it has made.

Why It Matters: China’s climate agenda will reach a critical crossroads in 2025. Driven by rapid clean energy growth, its carbon emissions will finally plateau, but as the country struggles with an economic slowdown, more forceful policies to decrease emissions may be difficult to implement.

By Li Shuo, Director, China Climate Hub, and Senior Fellow, Center for China Analysis

Learn More: Read Li Shuo’s essay, “The Year of Complex Challenges Will Intensify the Need for Robust Climate Action” in China 2025: What to Watch.