GO
Loading...

For China, New Era Brings New Set of Problems

China's newly-elected President Xi Jinping (R) talks with former President Hu Jintao (L) during the fourth plenary meeting of the National People's Congress at the Great Hall of the People in Beijing.
Getty Images
China's newly-elected President Xi Jinping (R) talks with former President Hu Jintao (L) during the fourth plenary meeting of the National People's Congress at the Great Hall of the People in Beijing.

Xi Jinping officially became China's new president on Thursday, ending a once-in-a-decade transition of power that began at last November's Communist Party National Congress.

Yet much has happened in the months since then, highlighting the challenges that Xi and the new leadership team now face.

At home, inflation is running at its highest level in 10 months posing a headache for policy makers amid signs of an uneven economic recovery, while news this week of 6,000 rotting dead pigs in a river that supplies tap water to Shanghai comes at a time of growing public discontent over pollution.

Trouble is also brewing overseas – the U.S. on Monday demanded that China must stop the hacking of U.S. computer networks and Beijing faces pressure to rein in long –time ally and neighbor North Korea, which has been escalating its war of words with South Korea.

(Read More: South Korean Stocks Whacked as War Threat Looms)

"Short-term there is not a great deal of change that will happen, but we should see some diplomatic issues come to the fore," said Paul Krake, founder of the consultancy View from the Peak: Macro Strategies.

"Cyberattacks are going to be a massive issue going forward," Krake added. "If I'm the Americans, I'm really pissed off. There's no doubt that this stuff is going on. This won't be addressed now but when there is a first meeting between Xi Jinping and [U.S. President Barack] Obama, at some stage in the next two years, then that's going to be the elephant in the room."

Both Washington and Beijing have accused each other of the theft of data from computer networks, in an issue that has increasingly grabbed the headlines in recent months.

(Read More: The Next Cyber War Is Already in Progress: Security Expert)

Man of the Hour

(Read More: Special Report: Time of Transition)

Besides diplomatic issues Xi, who has succeeded Hu Jintao as president, also inherits an economy that grew last year at 7.8 percent, its weakest level since 1999. Latest economic data from China show both industrial production and retail sales grew by less than expected at the start of the year, pointing to an uncertain outlook.

Xi is also being closely watched to see whether or not his government can successfully shift China's economy to one driven by consumption instead of investment and exports to put it on a more sustainable growth path for the long-term.

"They have talked about trying to rebalance the economy for 5 or 10 years now, but the imbalances got even worse, so you simply fall back on the model that got you into the difficulty in the first place," said Peter Elston, head of Asia-Pacific strategy and asset allocation at Aberdeen Asset Management.

Marc Faber, editor and publisher of The Gloom, Boom & Doom report told CNBC on Thursday that whether the Chinese government can ensure continuous growth will depend on reforms.

On the issue of reforms there have been some positive signs, analysts added.

Since November, Xi, the son of a reformist vice premier, has embarked on a campaign to end corruption in response to public anger that Communist Party members are above the law.

Just ahead of the Chinese New Year celebrations last month for instance, the Chinese authorities cracked down on "gift giving."

Krake said measures to tackle corruption would be one area he would be watching closely.

"The anti-corruption drive would be a net positive for China long-term," he said, adding that it would hurt a lot of people though. "It hurts retail, Macau [casinos], and a lot of high-end property in Hong Kong."

- By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter: @Dhara CNBC

Featured