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Although Beijing will likely raise interest rates in the short term to cope with inflation, growing speculative activity by Chinese companies poses a long-term threat to China's economic growth.
China’s growth in 2010 was impressive, but massive credit expansion has left the economy with a potentially dangerous liquidity overhang and its growth will likely slow in 2011. A host of other risks leave China’s longer-term future more uncertain.
Many of the significant domestic and foreign policy challenges facing Beijing in the coming year were compounded by the policy decisions made in 2010.
If the Chinese and U.S. militaries cannot commit to a cooperative relationship, progress between the two nations on strategic issues will be limited, hostility could grow, and both sides could become more resolute about defending their respective military objectives.
Although China's regime appears to be resilient, the recent demonstrations and upheaval in the Arab world show that support for authoritarian governments can dissolve rapidly.
Chinese growth may continue at a rapid pace this year, but a growing liquidity-induced bubble will eventually require major reforms.
China and India are poised to join the United States as the world’s largest economies by mid-century. As economic strength is translated into greater power and influence, will a tri-polar global system replace the unipolar status of the United States?
Although an appreciation in China's currency value could benefit the United States in theory, Chinese leaders would likely counterbalance such a rise with policies that could further damage both the Chinese and U.S. economies.
The most important outcome of the recent state visit by Chinese President Hu Jintao was the strengthening of mutual trust between the United States and China, which had suffered in the first nine months of 2010.
The United States and China can work together to find common economic ground on issues such as trade imbalances, the value of the renminbi, and technology transfers.