Challenges -NewYearJanuary is traditionally the time of year to look back on the successes and failures of the previous year and assess the challenges to come. It’s also the time of New Year Resolutions and promises of change. In this time of change and reflection, Startup China takes a look at some of the biggest challenges China is going to face and have to deal with in the coming years.

One of the biggest challenges the country faces, and the topic the whole world seems to have been talking about in 2013, is China’s pollution problem. This year has been the worst for a long time for many cities in China with regard to air pollution and levels of PM2.5 in the air. Cities like Harbin and Nanjing suffered levels that were off the scale. It’s not just air pollution that is a problem, water and soil pollution have also created issues in 2013. China’s soil is now so polluted that vast swathes of land can no longer support crops and whole regions of China are suffering from water shortages, due to widespread water contamination and over population.Challenges -Pollution

In the coming years the government has pledged to spend 5 trillion RMB on improving the environment. They have set targets to reduce carbon and water intensity dramatically by 2015 in order to reduce pollution and conserve resources.

To meet environmental protection targets, tax cuts and subsidies have been introduced for progress in various sectors including energy efficiency, new energy, new materials and alternative energy vehicles. The government has also pledged to increase the number of wind farms and the hydroelectric capacity, for which China is already the world leader. The aim is to increase the output of hydroelectricity to 345GW by 2020 and improve overall energy efficiency by 10%.

China faces a lot of challenges in achieving these goals as, currently, the level of technology and research and development in the green sector is not be able to create the efficiency increases the government is demanding. However, the government is aware of this and aims to increase research and development spending to 2.3% of GDP, to help pay for the much needed developments in green technology.

New developments and increased efficiency should help to bring down the cost of green energy, alternative energy vehicles etc. so that they become more economically effective and, therefore, more attractive to investors.

Challenges -Economy2

Another problem that China needs to combat is corruption. Xi Jinping has taken a hard line so far when it comes to corruption and even high-level officials have not been spared. However, the government needs to go further in 2014 and work to spread its influence to rural areas and districts far from Beijing, where local government corruption often gets in the way of environmental protection and development projects.

In order for the government to fully implement all their planned reforms they will need to take a hard line on corruption throughout the country, not just in high profile, 1st and 2nd tier cities. If they are successful China’s global image will improve, attracting more investment and foreign companies to the country. Government money lost through corruption will also decrease, meaning there is more available to spend on implementing reforms.

Another great challenge that China faces in 2014 and beyond, is how to manage the transition between the manufacturing economy and consumer economy and how to reduce the effects of the recent economic slowdown in the country. The Chinese government appears to be taking everything in its stride at the moment as it focuses on keeping growth stable at around 7.5%, the same rate as 2013. They are more concerned about the quality of growth rather than the quantity.

The aim in 2014 is to stabilize the economy and concentrate more on solving environmental and market issues rather than on growing GDP; thus enabling a smooth transition between a primarily manufacturing economy to a consumer and service based one.

They hope to aid this transition and keep growth in check by reducing local government debt and boosting the private sector. To achieve this, they aim to restrict local governments’ investment opportunities to sectors such as infrastructure, social housing and environmental protection to reduce over-spending.

In order to boost the private sector the government has promised to cut red tape and reform SOEs (State-owned enterprises) by improving their efficiency and encouraging private ownership of their assets.  They are also encouraging local governments to set lower growth targets for the coming year.

To help this growth, China also faces the challenge of improving logistics and infrastructure.  The problem e-commerce companies like Chinese internet giants Taobao and face are that the infrastructure isn’t complete enough for them to reach all their customers in a reasonable time. Highly-developed cities like Shanghai have a mature express delivery service in place; however e-commerce has been seeing growth in more 2nd and 3rd tier cities where there are less express delivery options. The lack of high-quality logistics firms in China has led to many problems such as late or damaged packages being delivered to customers in lower tier cities.Challenges -Future

In order to solve these problems, e-commerce firms are starting to develop their own logistics networks by building new warehouses across the country and establishing their own express delivery systems. As e-commerce is only going to grow in the coming years, companies like Taobao and will have to work hard to perfect their logistics capabilities and bring in third-party logistics partners to help them reach as many customers as possible and deliver quickly and without damaging goods.

China faces a myriad of different challenges, not just in 2014, but for many years to come. National and local governments, businesses and ordinary people will have to work hard to overcome these challenges. It remains to be seen how much improvement will be made to the environment, the most pressing matter for 2014, and how successful government schemes will be in this area.

The world will also have to wait to see how well China manages the transition from a predominately manufacturing economy to a consumer led economy. Fortunately for China, the government can see the mistakes and challenges other countries were faced with when they themselves went through this transition and, hopefully, they can learn from the mistakes and avoid encountering similar problems. For now, it seems like the only thing that is certain concerning China in 2014 is that the rest of the world will be keeping a close eye on economic and environmental developments in the country.
Richardson T., Future Perspective: China’s Challenges, The Futures Company, 2012