By Graeme Davies

The recent change of leadership in China created intense interest on the global stage, despite the fact that there was no high-profile election battle or even any real question over who would rise to become President of the People’s Republic. The level of interest reflects China’s new standing in the world economic order, having risen from the sixth largest economy to the second largest economy in the past decade.

But the appointment of President Xi Jinping was accompanied by a huge amount of debate among outside observers. With no public campaign and no election, there is little chance for anyone to actually know what Xi stands for and what intentions he and his accompanying cabal of Politburo members intend for China in the coming decade.

For all its immense economic growth in the past three decades, China is probably faced with more challenges now than at any time since the end of the Cultural Revolution. Economic growth has lifted millions out of poverty, but it has also created a widening gap between the haves and have nots and the urban classes and the rural poor. The economy has also become hugely imbalanced, with a bloated export sector and an underdeveloped domestic consumer class, exacerbated by the high level of savings many Chinese hold, and a weak social security net. As well as dissatisfaction among the poor there is also a growing awareness of the environmental damage wreaked upon the country by the breakneck industrialisation of recent years and a growing desire for more political representation and freedom.

These are all challenges that President Jinping faces on top of concerns about a bubble in the property sector and high borrowings at local government level.

The most recent growth figures, which showed China’s GDP expanded by 7.8 per cent last year, give hope that the outgoing administration has managed the slowdown wrought by the global economic meltdown well, and China has stabilised its growth at a more sustainable level, which will give President Jinping the chance to reform. At the time of his accession he hinted that economic policy will remain pretty much unchanged, but the administration would concentrate on various tasks such as accelerating urbanisation, which will attract more rural poor to the cities, improving infrastructure and, most importantly, boosting domestic consumption.

The last task is probably the most vital in that it will ‘normalise’ China’s economy by balancing out domestic and export growth and make it less susceptible to outside economic shocks. It would also, in time, lift the general quality of life of the wider population. For companies who deal with China already this should come as welcome news. For too long the focus has been on encouraging export businesses and, although this has benefited plenty of foreign operators, encouraging further domestic consumption would be a boon for those businesses looking to export to China who have previously found demand to be underwhelming and also those companies who have already established a presence in China for export purposes but could also use that base to build share of the local market.

It remains to be seen what reforms will be made to enable this much needed rebalancing of the Chinese economy to happen, and President Jinping has a pretty demanding in-tray to sift through after arriving in the highest office. But what many commentators are agreed upon is that such reform is essential and fudging it is not an option. Welsh businesses with a presence in China or ambition to build one should be preparing for conditions to shift further in their favour over the coming years.