New challenges for new leaders

Updated: 2013-03-19 07:43

By Robert Lawrence Kuhn (China Daily)

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How can China realize "the Chinese dream" which President Xi Jinping called "the great rejuvenation of the Chinese nation?" With complete transition of China's new leadership, headed by Xi and Premier Li Keqiang, it is appropriate to describe this grand vision and to set forth the challenges that must be met.

The Chinese dream is a moderately well-off (xiaokang) society, such that all citizens, rural and urban, enjoy high standards of living in all aspects of life and society. This includes doubling 2010's GDP per capita by about 2020 (approaching $10,000 per person), completing urbanization by about 2030 (roughly 1 billion people, three quarters of China's population), achieving modernization (China regaining its position as a world leader in science and technology as well as in economics and business), and appreciating Chinese civilization and culture (China participating in all arenas of human endeavor).

In making this vision a reality, China's new leaders face many challenges. I here list 35 such challenges (there are more), catalogued under five categories, so that global readers can grasp their scope and complexity and can assess their difficulties and progress.

Socio-economic

Economic and social disparities. In little more than 30 years, China has gone from being one of the world's most equal countries (though everyone was equally poor) to one of the world's most unequal countries (though more people have been brought out of poverty than at any other time in history). The gaps between the rich and the poor in China are now larger than those in India and the US. Farmers demand higher income and better social services. Urban workers demand higher pay and better working conditions. The residency (hukou) system that restricts migrant workers from accessing healthcare and education has become untenable and destabilizing.

Macroeconomic transformation. China must shift to a consumption-driven economy, more dependent on people enjoying higher standards of living and less dependent on government-financed fixed investment and an unsustainable surplus of exports over imports.

Microeconomic transformation. China's old economic model of low-cost, cheap-labor, assembly-type manufacturing, which generated China's remarkable development, has reached the end of its historic cycle. To pay workers higher wages, Chinese companies must produce higher gross margins by providing more value-added benefits, via technology, branding or service. (Companies with high gross margins are much harder to build than those that are based on low cost and cheap labor.)

Market versus government. How should China's resources be allocated optimally? Where can the market function more efficiently and where can government? The obstacles to rational analysis today are not ideological but vested interests. (Most economists favor more market mechanisms, but arguments resisting reform are three-fold: market forces increase social disparities; market economies are more easily disrupted by financial turmoil, for example, 2008-2009; and a strong government preserves China's socialism.)

State-owned enterprises. What is the proper role of China's large, powerful SOEs? How much monopoly power should they enjoy? Some view SOEs as a bulwark of government control and a symbol of socialism. Others as a blockage of reform and a hindrance to productivity.

Allocation of resources. How to optimize among sectors? How much to spend, relatively, on industry, agriculture, consumer consumption, healthcare, education, science, military/defense, culture?

Financial ambitions. China intends to become a major financial power, with Shanghai as a world financial center. How then to deal with currency exchange rate reforms? How to enable China's yuan to become fully convertible and to become an international reserve currency?

Interest rate reforms. How to allow the market to play a larger role in setting interest rates? Currently, with interest rates controlled by the government, spreads between what big banks borrow (from citizens) and lend (to companies) generate high profits, which are in effect a tax on citizens.

Pollution and environmental protection. How to balance economic growth and development with environmental degradation and pollution? Environmental activism is becoming increasing vigorous in China. In fact, many "mass incidents" (that is, protests) are pollution induced.

Sustainable development. How can China become less dependent on foreign oil and other imported resources? How to assure that water will be adequate for consumption and industry?

Population dynamics. What is the optimum family planning policy? When should the one-child-per-family norm be amended or terminated? What is the ideal population for China?

Intellectual property rights. How can IPR be sufficiently protected to uphold the rule of law and to stimulate indigenous innovation? How to enforce IPR laws?

Socio-personal

Healthcare. How to restructure China's healthcare system, providing all citizens with competent, contemporary medical services? How to redress gross disparities between urban and rural healthcare? How to curtail systemic corruption?

Education. How to provide quality education for all citizens, reducing severe imbalances between urban and rural schooling? How to rethink traditional Chinese education, which focuses on standardized tests, so that students may be prepared for contemporary society where knowledge creation and social sensitivities predominate?

Housing. How to provide adequate housing at affordable prices? How to prevent housing prices from rising so high that young people cannot afford them -but to do so without undercutting property markets (on which local governments and banks depend)?

Retirement. How to give confidence to citizens that they will have adequate funds for their senior years? (Only then will people spend on current consumption.)

Food safety. How to make sure that China's food supply is safe? How to assure food quality and restore public confidence?

Values and morals. China's values were long based on Confucian ethics, until extreme leftism repudiated them. Now the market economy rewards individual initiative. What values should shape today's China? What about the resurgence of religion?

Governance and democracy

Constitution and rule of law. How to establish the overarching, adjudicating power of China's Constitution? How to make the rule of law supreme? How to bring about an independent judiciary?

Government and Party leadership. How to build transparency, accountability and checks-and-balances into China's system of governance? How to transfer some processes and mechanisms of governance to broader segments of society?

Public information and national security. How to balance national security and the public's right to know? For example, should environmental data be "state secrets"?

Corruption. How to reduce graft, bribery, fraud and other malfeasances - especially when massive and sudden wealth-creation is facilitated by officials unfettered by checks and balances? How to engage the power of the press and new media to root out corruption?

Media and new media. How to encourage individual freedom of expression without undermining collective stability? How to mobilize the power of the people for the good of the country?

Non-government organizations. What is the evolving role of NGOs, such as environmental advocacy groups, in handling complex issues? What about labor unions (heretofore a contradiction in a nominally Communist system)?

Democracy. How to build democracy so that citizens are enabled to participate in the process of governance? How can the transforming power of social media be channeled to promote a democracy that works?

Human rights. How to protect individual human rights while continuing to privilege the collective rights of the large majority? How to make human rights a priority in China?

International affairs

Sovereignty and relations with neighbors. How can China balance its claims of sovereignty - such as in the South China Sea, which are sacrosanct in China but disputed outside of China - with complex global interrelationships?

US-China relations. What steps can each side take to assure the other side that its vital interests are protected, thus encouraging positive relations. (Prototype: Cooperation at the UN on the Korean Peninsula nuclear issue.)

Bilateral relations. How does China balance its diverse relations with various countries? Consider Russia, Europe, Japan, India, the two Koreas, Vietnam, Brazil, Saudi Arabia, etc.

Global responsibilities. How can China take on greater global duties even while it faces serious domestic problems? How to assure foreigners that China plays by the rules of international norms? How to deal with isolated states, like the Democratic People's Republic of Korea and Iran? How to support international peace and prosperity?

China's emergence

Civilization and culture. How can China's culture participate fully in the world's marketplace of ideas and values?

Science and technology. How can China's science and technology contribute to world civilization as well as drive domestic transformation? How to facilitate greater creativity and innovation?

Corporate international expansion. How can Chinese companies going abroad enhance China's engagement with the world? How to reduce foreign fears of China's growing economic power?

Military modernization. What are the implications of China's expanding military capabilities? How to reassure nations that are growing wary of China's military might?

Global voice. How can China help set the world's agenda, along with the US and other powers, especially in terms of politics and economics? How can China's international media (CCTV, Xinhua, China Daily) have global impact?

I know that China's core leadership - President Xi and Premier Li - appreciate these challenges. With their administration set for a decade, continuity of policy is assured.

For Xi, a sober realization of reality is not a recent revelation. In 2006, I met then Zhejiang Party Secretary Xi, who stressed that pride in China's recent achievements should not engender complacency: "Compared with our long history, our speed of development is not so impressive. We need to assess ourselves objectively," he stressed. "But no matter what, China's development is driven by patriotism and pride."

The author is an international corporate strategist advising multinationals on doing business in China. He is the author of How China's Leaders Think, featuring China's new leaders.

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