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Chinese president Xi Jinping focused in his first five-year term on corruption and internal party discipline; his second term is likely to concentrate on economic development and structural reforms.

A previous president, Jiang Zemin, set two goals – to build a ‘moderately prosperous society’ by 2021 – the centenary of the Chinese Communist Party’s foundation – and to create by 2029 ‘a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious’. Party congresses are held only every five years and the congress of October 2017 is key to achieving those goals.

But if GDP is to double between 2010 and 2020, growth needs to be 6 per cent to 7 per cent in coming years. GDP currently averages USD8,737 a head but the next five years will be critical for China to graduate from a middle-income to a high-income economy.

China has been a middle-income economy for 25 years, with the last eight years in the ‘upper-middle’ bracket. Hong Kong, South Korea and Singapore took seven years to escape from upper-middle (Japan nine years) and these historical comparisons show that speed matters. China’s next five years are therefore critical.

The private sector is the growth engine of China’s economy and the driver of productivity growth. Many private firms have restructured their balance sheets. So while the private sector accounts for over 70 per cent of industrial output, more than 85 per cent of urban employment, more than 80 per cent of exports and over 70 per cent of fixed investment, it accounts for only a third of corporate debt. The sector has thus been in a good position to capitalise on the recent pick-up in global demand.

More than 70 per cent of Chinese lived in the countryside before the early 1990s; now an urbanisation push means 57 per cent live in towns. But so far, urbanisation has lagged the quantitative improvement. Most new urban residents cannot legally access education, healthcare services or, sometimes, local housing. Loosening the restrictions will encourage more migration into towns and, as urban workers are four times more productive than the rural sector, national productivity should rise.

China’s manufacturing has progressed since the global financial crisis from labour-intensive low-value-added goods, such as clothing; exports are now dominated by machinery and electronics.

This upgrading is key to productivity growth over the coming decade. China is still a developing economy with lots to learn from developed nations in terms of technology, expertise and knowledge. It should thus remain open to inward investment and also encourage direct investment abroad, with policymakers providing a competitive and fair business environment.

China also needs to contain systemic risks, de-risking its financial system by strengthening regulations, while deleveraging state-owned enterprises, tackling the problem of ‘zombie’ companies.

But Beijing will not seek growth at any cost. Growth must be sustainable, fair and green. We expect to see tougher controls on pollution and more green investment. Also, with 40 million Chinese still living in poverty, it needs policies to eradicate deprivation by 2020.

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