With Russia’s oil crisis and fighting with Ukraine, the rise of the Islamic State, potential cyber warfare from North Korea, China’s antitrust stance towards international business and trouble in Greece once more, it woud be an understatement to say that geopolitical risks will be in focus in 2015.
“The big risks are in geopolitics,” says Geoffrey Garrett, Dean of The Wharton School at the University of Pennsylvania. Garrett will be paying particularly close attention to China this year and Chinese President Xi Jinping.
“Xi Jinping is serious about corruption,” says Garrett, who also sees potential for concern over how the Chinese President will respond to his country's slowing economy. “Does he also intend not to do another [round of] stimulus as the Chinese growth slows down when he’s got political temptations to open the spigot again?”
Garrett is struck by how quickly Jinping has been able to consolidate his power base and believes that he’s likely to become the most powerful leader in China since the late 1970s. “He understands the power of nationalism, particularly with younger Chinese people and he’s playing that up in a lot of territorial disputes,” says Garrett. China claims a number of territories it doesn’t necessarily control. These include Arunachal Pradesh in India, the Senkaku/Diaoyu islands in the East China Sea and the Paracel Islands in the South China Sea amongst others.
Garrett believes that Jinping’s consolidation of power isn’t a path to democracy. “It’s actually to reinforce the credibility of the one party state, the communist party.” Jinping famously launched a “thorough clean up” of his party when he reached office, and is notably anti-corruption. This is an attempt to save and strengthen the communist party, says Garrett.
Still, Jinping has instituted positive change in China. “What is clear that he wants to do with that power is serious economic reform,” says Garrett. “I think that’s always been the case - take something like intellectual property. The U.S. and other countries can bang on China to do something about IPR [intellectual property rights] but it’s when it’s in China’s interest that they will do it and I think we’re probably at that pivot point now.” Garrett expects China to open more retail finance in 2015 as well. They won’t, however, be good for western businesses.
“Chinese firms are getting better everyday,” he says. Chinese companies are no longer national successes but international successes like Alibaba (BABA) and Huawei which is competing with American companies like Cisco (CSCO) and Samsung.
(Yahoo holds a stake in Alibaba.)
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