China must liberalise financial markets and free state-owned monopolies to secure the next stage of growth, writes Philip Wen.
As if to draw out the intrigue on what has already been a momentous year, Xi Jinping was almost an hour late when he stepped on stage last month to face the world's media for the first time as the new leader of the Chinese Communist Party.
"Sorry to have kept you waiting," he said, with a smile. At least, that was what his English translator relayed.
While it was generally clear Xi intended to convey a feeling of mild regret, a literal translation would have been closer to: "I've let you wait a long time."
It may be splitting hairs but a flurry of discussion ensued on China's ubiquitous Twitter-like microblogs, ranging from praise for his humility to doubt over whether he actually intended to apologise, eventually morphing into a debate over the complexities of language barriers preventing the English-speaking world understanding politics and culture in China.
There was no explanation or warning of the uncharacteristic delay, a departure from the clockwork punctuality the ruling Communist Party typically demands for events of such ceremonial importance - the unveiling of its most senior leaders in a once-in-a-decade power transition.
It was probably as benign as ensuring security checks were complete before the politicians were allowed on stage. But some wags were beginning to wonder if Xi had been struck down by a "sore back" again, a reference to his mysterious two-week "disappearance" in September, when he cancelled several important meetings and public appearances.
Chinese officials did little to dispel some of the more extreme rumours, including that he was seriously ill, or that he was hit in the back with a chair hurled during a meeting that turned violent with a fellow "princeling" - a term used to describe the close-knit network of sons and daughters of revolutionary heroes increasingly gaining influence and political capital in China. Again, no explanation was proffered.
China's standing in the world now, combined with the lack of regular access to senior politicians, has meant the increasing horde of China-watchers tend to hang off every public utterance from the likes of Xi, trying to read between the lines, squinting for subtle messages in what is invariably tightly scripted party-speak.
Just this month, Xi's visit to Shenzhen, in China's south, drew close attention from state and international media. Shenzhen was a stop on Deng Xiaoping's landmark southern tour in 1992 - the genesis of the catchcry "to get rich is glorious" - and where he canvassed support for his platform of economic reform.
And it was Xi's father, Xi Zhongxun, who was a key architect of Shenzhen's special economic zone, having convinced Deng and others in Beijing of the merits of a free-market economy.
Decades later, princeling Xi's tour to the bustling technology manufacturing hub has sparked excitement in those trying to detect evidence that China will truly begin to embark on economic reform.
Urgent reforms are needed to rebalance its economy from a free-spending, investment-led model to a more disciplined, sustainable consumption-driven one.
The saturation coverage has been for good reason. Xi and the other six men in the party's Politburo Standing Committee will marshal the fortunes of China for the next decade - during which it is likely to overtake the US as the largest economic superpower in the world.
By now, the importance of China for Australia has been rammed home repeatedly. The Gillard government's Asian century white paper was launched this year and is designed to inform all future policy to ensure the nation reaps dividends from the region's growth.
There has been a year of celebrations in Australia and China to mark the 40th anniversary of diplomatic relations between the two countries.
And, just this month, the federal Treasury devoted its entire quarterly round-up to a special series on China.
In its series of reports, Treasury says that after more than three decades of breakneck economic growth, China has reached a period where a heavy reliance on investment and exports has led to the build-up of several economic, social and environmental challenges that need to be addressed.
It says with the cost of labour sharply on the rise and growing competition from low-cost producers elsewhere, China can no longer depend on exports to the extent it has become used to.
"While there remains potential for further impressive growth, the favourable conditions that China has benefited from in the past are, in many respects, reaching their 'use by date'," it says.
With the developed economies of the US and Europe in the doldrums this year, nerves have been tested as the Chinese economy showed signs of faltering.
Economic growth has slowed in each consecutive quarter and industrial output struggled all year until the past couple of months.
Slowing construction activity and turmoil in the Chinese steel industry caused iron ore prices to fall sharply in the middle of the year, jolting panic through commodity markets, before eventually bouncing back.
In March, the outgoing Premier, Wen Jiabao, surprised markets by lowering the government's long-held annual gross domestic product growth target from 8 per cent to 7.5 per cent.
But as the Treasury secretary, Martin Parkinson, points out, a more economically and environmentally sustainable growth rate of between 7 per cent and 8 per cent would still make the Chinese economy roughly double within a decade.
"Some have expressed the concern that Australia is too dependent on China economically, that we are placing all our eggs in one basket and that a downturn in China will have disastrous effects on Australia," Parkinson says. "Certainly, Australia would not be immune to a serious downturn in China but Australia's sensitivity to economic conditions in our major trading partners is neither new nor avoidable."
Economists have been trying to predict the bottom of China's economy and a recent raft of promising data has prompted some to think the economy is showing clearer signs of recovery after an indifferent year.
Industrial production grew by more than 10 per cent in the year to November, while electricity output also grew strongly. China's purchasing managers' index is also at year-long highs.
But IHS Global Insight says China's economy is not yet out of the woods and will prove a bumpy ride next year.
"The stabilisation is extremely fragile," says IHS Global analyst Alistair Thornton in Beijing. "[It is] threatened, most obviously, by weakness in the eurozone but also domestically, via the banking sector and property market."
The bigger picture risk, Thornton says, is if China fails to enact difficult but necessary reform, including liberalising the financial markets (including exchange rates and bond markets) and freeing up state sector monopolies.
"Long term, [Xi's] legacy will be defined by whether they manage to set China's economy on a sustainable footing," he says.
"This means tackling vested interests and tackling corruption, among other things."
"If we close out 2013 without major announcements and implementations in terms of the financial markets and state sector, it does not bode well for the next stage in China's growth."
Through its appetite for bulk commodities such as iron ore and coal, China has naturally become an indispensable part of the Australian economy. Yet depth and sophistication in the relationship has often been lacking.
In high-level meetings with Australian ministers, two issues invariably get raised by the Chinese.
One is the decision to allow the US military to rotate its marines through Darwin. The second is whether Australia truly welcomes foreign investment from China.
An agribusiness investment adviser, David Williams, who seeks to match Chinese investors with Australian assets, says the Chinese remain thin-skinned and react negatively if they detect xenophobic overtones in the public debate. He says they need to understand that Australia is a democracy and there will always be dissenting views.
"They react very badly if they see too much in the press or coming out of Canberra about negativity associated with Chinese ownership - and they need to get over it," Williams says.
But as China grapples with transitioning to a more sustainable economic growth model, so too are Chinese investors. Whether state-owned or private, gone are the days of borderline reckless spending on resources projects - China Inc is becoming savvier and more disciplined with where it puts its money.
"I think we're going to see a slightly more judicious Chinese approach on acquisitions," Williams says. "And I think we'll see more oversight from banks - but I don't think it's going to be an enormous detriment in getting deals done."
In the next year, Chinese interest in Australian resources is expected to remain strong but the real growth is expected to be in agricultural assets.
A steady stream of large Chinese players have already been kicking the tyres at a wide array of assets, particularly in dairy, aquaculture and red meat.
The chief executive of EMR Capital, Jason Chang, says the Chinese are keen to get as much of a foothold on strategic agricultural assets as possible, not necessarily to secure supply but more to gain exposure to global food price inflation, which is almost inevitable given the growing middle class in China and India and dwindling arable land.
But Australia's agribusiness landscape is relatively fragmented, making megadeals harder. And notwithstanding property, tourism and education, Chang predicts the resources sector will remain the biggest destination for Chinese funds.
"A lot of it is driven by the urbanisation that's occurring, not just in China but across the rest of Asia," Chang says. "Regardless of whether real GDP growth in China drops, it's off a much larger base. The fact is the big economies like India and China cannot self-supply their commodities needs."