Chinese president Hu Jintao and Premier Wen Jiabao face their lasts months in office. On Thursday the Communist Party Congress convened to begin the once-in-a-decade leadership transition. Xi Jinping and Li Keqiang climbed to the highest echelon of the Party and now they both face the great challenges posed by the economic model they’ve inherited.
Branded as “harmonic development”, the model was started by Hu and Wen ten years ago. And now it leaves an astonishing legacy: one decade ago the Chinese economy was the sixth in the world, whereas today it reached the second position.
Nonetheless, China also felt the global economic slowdown. The GDP growth plunged in September into a 7.4% for 2012. A percentage well below the two digits figure the Asian dragon has been accustomed to for the last 20 years. There’s still hope though. Fresh figures released in October suggest that Chinese economy is stabilizing.
HSBC’s PMI Index rose to a 49.5. Whereas the official index set the figure at a 50.2. Good news for a China in transition. HSBC’s China Chief Economist was quoted on the BBC as saying: “there are signs of a recovery on domestic consumption.” He praised the stimulus plans by saying that these good news are the result of capital injection, infrastructure construction and more fiscal spending.
Hu Jintao’s farewell speech was a sort of a road-map on how to face the challenges of Chinese economy during the next decade, emphasizing the need of working toward a new economic model. “In response to the national and international economic situation, we must speed up the design of a new model based in the improvement of quality”. In front of the 2200 Party delegates he added the backbone of such reform will be an increase on domestic consumption, specially consumer demand.
A challenge in itself that future president Xi Jinping and his future Premier Li Keqiang will have to deal when they formally take over in Spring. At that time it is likely that the country will be on the path of growth again. Nevertheless, the challenges for the new leadership won’t easily vanish. The current economic model is about to perish, having the potential to create unemployement and social instability. Furthermore, the gap between the rich and the poor, corruption and a rise on local debt jeopardize the well balanced Chinese finances. Indeed, Hu Jintao’s farewell speech was full of good intentions. Unfortunately new leaders will have to face a rather bitter reality.