China has just completed it’s 19th National Congress of the Communist Party - where ritual and dogma combine with introspection and strategy. Xi has taken on undisputed leadership - almost alongside Mao, and stronger than Deng (‘the reckless capitalist roader’). An entirely new body of “Xi Jinping thought” has been elaborated – and has now been incorporated into the Party’s constitution. Capitalist China will remain permanently governed by a Leninist party that monopolizes state power.

Xi consolidated his position during his first term, by reversing much of Deng Xiaoping’s legacy, including the opening of China’s economy, the separation of the party from government, and a low-key approach to foreign and security policy.

The big news now is that, under Xi’s leadership, the Party has revised its principal contradiction for the first time since 1981. Whereas the contradiction had previously been framed as a tradeoff between the needs of the people and China’s “backward social production,” it is now viewed as a tension between “unbalanced and inadequate development” and the “people’s ever-growing needs for a better life.”

Three “secondary contradictions” are especially striking on the economic front.

First, there is ongoing tension between the role of the state and that of markets in guiding resource allocation.Xi’s political report praises the mixed ownership model and also aspires to an economy led by great firms with unmatched global competitive prowess. But it glosses over the thorny issue of state-owned enterprise reform that may be required to resolve this contradiction and avoid the Japanese “zombie” problem of a chronic debt overhang.

Second, there is the tension between supply and demand. Supply-side structural reforms are now the highest priority. The emphasis is on productivity, innovation, pruning excess capacity, and moving up the value chain in manufacturing and services.

Third, is the contrast between the path and the destination. The Chinese economy is only in the early stages of its long-heralded structural transformation. Its services sector is growing rapidly, but is still embryonic, accounting for just 52% of GDP. And household consumption is growing rapidly, but is still less than 40% of GDP.

Xi states that China will never import a political system from anywhere else in the world. China’s “socialist democracy” (Xi’s terminology) “is the broadest, most genuine, and most effective democracy to safeguard the fundamental interests of the people” and it now represents an alternative development model for other nations.

China’s official media have taken the cue. Government-controlled news outlets have flooded the country with story after story on why Western-style liberal democracy is now moribund. Moving beyond the conventional arguments that democratic decision-making has been ineffective in bringing about long-term economic development, a new set of arguments has been unveiled: Western democracy is corrupt, hypocritical, and fails to meet the needs of the poor. The global spread of liberal democratic ideas has ground to a halt, leaving the West’s geopolitical power and prestige ripe for challenge.

When China does become the world’s largest economy over the next decade, the global system will be led by a non-English-speaking, non-Western, non-democratic state for the first time.

Xi is committed to move beyond pure economic growth - focus is now on fighting corruption and inequalities.

As Western democracies - shanghaied by the rich - seems uanable to do anything about income distributions, may be an era of Xi’s enlightenment will perform better.

However,alhough the party’s internal power dynamics haven’t changed much in the last few decades, Chinese society has moved far beyond the Maoist or even the Dengist era. Few Chinese, including members of the party, genuinely believe in any official doctrine. Economically, the private sector accounts for more than 60% of China’s output, and the party has become practically irrelevant in the daily lives of ordinary Chinese.

For some, the chinese dream is on the verge of becoming a nightmare. Demographic trends are threatening to turn the labor surplus that helped drive China’s rapid growth over the last few decades into a labor shortage at an unprecedented pace. Water contamination and scarcity, alongside carbon dioxide emissions and lethal levels of air pollution, are imperiling people’s health and jeopardizing the sustainability of China’s economic performance.

Moreover, Chinese GDP growth is being fueled largely by a combination of fast-rising debt and widespread property bubbles. Even Chinese researchers admit that their country has one of the highest levels of income inequality in the world. As the poor get poorer and the rich get richer, many are asking if this is what “socialism with Chinese characteristics” really means.

However, China owes most of its debt to itself, because political priorities guide lending as much as commercial considerations. China supports international efforts to address environmental degradation and climate change. Most people are becoming better off, if unevenly. And Xi’s administration is at least doing something to stamp out the endemic corruption.

Kevin Rudd

Minxin Pei

Stephen Roach

Chris Patten