At the Highest Level

　　China’s top leaders are well aware ofthe problems facing the world’s secondlargest economy and followers are cautiouslyoptimistic that the new leadershipwill push through long anticipated reformsneeded to ensure China continues on itslong-term growth trajectory.

　　Some of the new (old) ideas to manageimbalances throughout Chinese societyinclude: privatizing rural land to boostrural incomes and encourage migration tocities; refining the family planning policy toensure the country has an adequate laborsupply to offset a rapidly aging population;and reforming the hukou household registrationsystem to give migrant workersand their children equal access to urbanfacilities.

　　From an economic perspective, China’snew leaders must continue to stabilizethe economy to keep employmenthigh while avoiding a surge in housingprices and inflation that could underminereforms needed to overhaul the country’sinvestment and export-oriented growthmodel. Environmental protection, foodsafety and public health are high on theyoung administration’s agenda as a richer,larger and healthier middle class in Chinawould not only help to stimulate domesticconsumption but also demand more fromthe future.

　　The changes taking place in Chinaare worthy of their own story. One of themajor issues to watch will be the success(or failure) of Chinese and other emergingcountryfirms in cracking into developedmarkets. The fruits of globalization will nolonger largely accrue to rich-world businessesas emerging-market products andservices win consumers in the West. In thecoming years, Chinese car manufacturerswill continue their efforts to break intoEuropean markets, while Chinese real estatedevelopers, construction and Internetfirms look to diversify their asset portfoliosinto more stable but still revenue-generatingeconomies.

　　Against this backdrop, manufacturingwill be undergoing a revolution. Rising Chinesewages will prompt some domesticand foreign-owned factories to look formore cost-competitive locations - in someinstances back home, but more often toplaces such as Bangladesh or Mexico. Otherswill have to reinvent themselves.

　　The stakes are equally high forresource-endowed countries such asAustralia as their economies remainheavily dependent on China, with mostmaintaining a relatively long-term bullishview about China’s future demand forcommodities. China’s gradual shift fromheavy infrastructure construction to amore domestic consumption orientedgrowth model is understandably changingthe strategic planning of global miners.

　　Chinese Premier Li Keqiang advocatesfurther urbanization, which could putmore money in the pockets of China’smigrants to spend on cars, televisions,appliances and real estate to fulfill theiraspirations of joining China’s middle classranks.

　　Put these themes together, and it isclear that the rest of 2013 and 2014 isgoing to be a period of great change forcompanies in many sectors. But in thatchange lies opportunity, and the betterthe businesses’ knowledge of the environmentin which they will be operating, themore likely they are to succeed.

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