China’s 12th National People’s Congress has formally named Xi Jinping as the country’s new president.  The new premier – widely expected to be Li Keqiang – is scheduled to be named on March 15.

China’s new leaders face a challenging agenda. Those expecting political change are likely to be disappointed: the new Chinese government does not include leading political reformers.

But China will change dramatically over the coming years in other striking ways as the new leadership focuses ever more strongly on tackling the country’s social and economic challenges and seeks to provide China’s increasingly assertive and well-informed citizens with a better quality of life.

China has succeeded remarkably in delivering high-octane growth and development to millions of people.  Three decades of impressive, non-stop growth have come at a huge price, however, and there is now consensus that the current economic model is no longer able to ensure future development.

Several important economic targets have been set for 2013: China will aim for economic growth of 7.5% while limiting inflation to “around” 3.5% and adding more than 9million urban jobs.

Quality of growth, not just numbers

However, the next decade is going to be about the quality of growth, not just numbers. Responding to pressure from the public, China’s new leaders have vowed to fight corruption, narrow the urban-rural income divide, improve the lives of China’s “urban billion” and tackle environmental problems.

They will also focus on meeting the aspirations of China’s growing middle class, which wants quality-of-life improvements such as a cleaner environment, higher food-safety standards, water security, and social protection.

“We should unwaveringly combat corruption, strengthen political integrity, establish institutions to end the excessive concentration of power and lack of checks on power and ensure that officials are honest, government is clean and political affairs are handled with integrity,” said outgoing premier Wen Jiabao at his farewell speech to the National People’s Congress.

Wen enumerated major domestic challenges that have caused public discontent in recent years – air pollution, toxic factories, tainted food and abuses of power – and pledged more resources to environmental protection and public welfare.

His speech was a tacit admission that quality of life had been sidelined by a focus on breakneck economic growth. The question facing President Xi and Premier Li will be to ensure high rates of growth while also addressing environmental concerns.

Clean government

As Qin Xiaoying of the China Foundation for International and Strategic Studies (CFISS) wrote recently in China Daily, “while people struggled to get sufficient food and clothing during the Deng Xiaoping era…people today probably want rule of law and a democratic living space more ardently than people have at any time before in the country’s history.”

He adds that the people “want a clean government that is more self-disciplined and responsible, and more efficient in social administration. In addition, they wish for greater safety secured through legislation and law enforcement; greater happiness through completion of the social insurance system; greater dignity gained through the relentless punishment of corrupt officials and the promotion of equality and justice; and greater identity with the international community, established through rational broadening of governmental, nongovernmental, economic, trade, military and diplomatic channels.”

In order to deliver on these and other public demands, China’s leaders must try and rebalance the economy by shifting from exports and labour-intensive manufacturing to growth based on domestic demand and innovation.

Middle Income Trap

The Asian Development Bank (ADB) has warned that China risks being caught in the middle-income trap, an economic situation where a developing country attains a certain income but remains stuck at that level, usually because of rising wages and falling cost competitiveness.

The ADB advises investing in technology, promoting innovation by the private sector and loosening the state’s control over the financial sector.  In addition, it says, China should expand its service sector, speed up urbanisation, and try to reduce income inequality so that ordinary people benefit more from economic growth.

Clearly while China used to focus on constructing factories, roads and bridges; it must now devote as much time, money and attention on improving its education system and encouraging innovation.

Urbanisation is a key driver of China’s modernisation – and is also expected to spur growth. More than 50% of China’s total population now lives in cities, compared to less than 20% in 1980.

The urban economy will continue to be a “huge engine” of China’s economic growth, spurring domestic consumption and generating over 90% of China’s GDP by 2025, says Li Keqiang who is known as a “champion” of urbanisation.

“Urban billion”

“Urbanisation is not about simply increasing the number of urban residents or expanding the area of cities,” Li said in a recent article in People’s Daily. “More importantly, it’s about a complete change from rural to urban style in terms of industry structure, employment, living environment and social security.”

However, China’s “urban billion” pose a number of urgent challenges to the new leaders who must take action to integrate migrant workers into urban life, ensure sufficient public funding for social services, work for a pollution-free environment and improve water and waste management. Regulation of the real estate sector is also urgently needed.

A key – and divisive – challenge facing the new leaders is to give rural migrants and their families the same opportunities in cities as other urban inhabitants. Changes in the Hukou system under which rural migrants have limited access to local social services enjoyed by urban residents will not come easy.  The new leaders have, however, suggested the introduction of a system of national resident permits.

Seeking to counter public anger over corruption, Xi Jinping has declared a ban on official extravagance and banished some of the usual pomp from this year’s gathering of the National People’s Congress.

It will be much tougher, however, to pass laws forcing government officials and their family members to declare their assets and financial activities. Action is needed however: The lavish lifestyles of some officials – who often drive luxury cars, own multiple villas and send their children to elite foreign universities – are much hated by the public and have become a source of strong public discontent.

Ageing before becoming rich

As a result of advances in healthcare and nutrition, combined with the one child policy and very low fertility rates, China is one of a small number of countries in which the population has aged before it has become rich.  An estimated 14% of the Chinese population is aged 60 or above and the country is expected to count some 400 million people (or about one-third of the population) over 60 year by 2050.

Foreign policy poses another headache: China’s new leaders will have to contend with an increasingly fraught relationship with the US and their Asian neighbours. The recent announcement of a 10.7% increase in defence budget to 115.7 billion dollars has increased regional concerns about Beijing’s military spending, especially in view of tensions in the East and South China Seas.

Beijing is also under pressure to take on “international responsibilities” by joining the Western consensus on tougher action against North Korea, Iran and Syria.

Both the new president and premier are experienced party officials who can be expected to navigate the sometimes-choppy waters ahead with skill and creativity.  Given the scale of the tasks ahead, China’s new leaders will also have to be especially nimble and fleet-footed to adapt to emergencies relating to public discontent on quality of life issues, including the environment.