The new leaders who will steer the world's second largest economy for the next decade will implement the necessary reforms to transform the Chinese economy, according to Chinese economists, business leaders and Western CEOs who took part in a CNBC debate at the World Economic Forum in Tianjin, China.
"Among the new leaders, there is a religious belief in reform. Without reform, there is no way to achieve success in the future," said Li Daokui, Director of the Center for China in the World Economy and Former adviser to the People's Bank of China. "The key issue is the fundamentals of growth. We are now running out of the dividends from institutional reforms pushed out by the previous government. To continue to grow, we need a new round of institutional reforms."
Li noted that, while the Chinese economy continues to grow, the dismal performance of equities on the mainland — the worst in Asia in 2012 — is evidence that the Chinese financial markets and corporate China need further fundamental changes.
"There is tremendous need for more small and medium-sized enterprises and a tremendous need to change the financial system to make that happen," added Klaus Kleinfeld, Chairman and CEO of Alcoa. But Kleinfeld said he believes China is already headed in the right direction because of its current five-year plan. "You can take it to the bank," he said. "The plan is extremely good."
"I have great confidence in the political leadership here," said Martin Sorrell, CEO of WPP. "State-directed capitalism works. My experience is that the leadership understand the need for change."
But not everyone expressed thesame overwhelming confidence that China's currently on the right path.
"It's not true that the quality of growth is as high as the five-year plan wanted," said Arvind Subramanian of the Peterson Institute for International Economics. "There is still an internal imbalance. China is still doing a lot of investment. It has not improved consumption and not improved employment."
Lee Kai-Fu, chairman and CEO of Innovation Works Management, said innovation (not surprisingly, given his business) will help ensure that China achieves the changes needed for its economy to develop beyond its dependency on government spending and exports.
"The question is whether China can build solid and useful products that its people will use and drive up consumption," he added. "We are very bullish and optimistic."
Still, even those who have faith in China's new generation of leaders, who will begin to take power in a transition that is expected to start next month (although the disappearance from public by has cast some doubt on that timing), say they must act quickly and decisively to implement the new reforms.
"The coming three years are critical for the next 20," said Li.