Remaking economy tops new leadership's agenda(2)

"The working-age population is shrinking and this problem will get worse in the coming years," said Wang Tongsan, an economist with the Chinese Academy of Social Sciences, a government think-tank. "We're at an inflection point in terms of labor supply."

Vast labor flow from China's rural inland to factories in booming coastal cities has contributed to fast expansion in exports, which account for about a quarter of the country's GDP.

With China already having become the world's biggest exporter, there is limited room for further increase in its share of the global market, especially after the 2008 global financial crisis, analysts have noted. A rising yuan also hurts China's export advantage.

"A substantial secular decline in the contribution of exports to growth" is one of the most prominent structural challenges China has to deal with, according to Arthur R. Kroeber, nonresident senior fellow at the Brookings-Tsinghua Center for Public Policy.

Another challenge is the rapid increase in credit fuelled by the government's 2009-2010 stimulus program, which "almost certainly led to a substantial reduction of the return on capital, " Kroeber wrote in a paper published last year.

Over the past decade, China's economic growth also largely relied on enormous investment in manufacturing sectors, infrastructure construction and real estate. But as skyrocketing property prices triggered public complaints, the government imposed tough curbs on demand.

Moreover, the kind of stimulus package that it is believed injected as much as four trillion yuan into infrastructure and social welfare in 2009-2010 will not be seen again for the coming years, analysts have said.

CHANGES NEEDED

Chinese leaders seem aware of the risks.

The government has for years called for a transformation of the country's development pattern to make its economy more efficient, innovation-driven and reliant on consumption.

While the sheer size of China's economy makes it difficult for any changes to take hold quickly, more concrete moves should be made to facilitate that shift, economists have urged.