There is cause for "realistic optimism" for China's medium to long-term growth prospects even though it faces huge challenges in reforming the economy and dealing with the expected social implications.
Deputy Prime Minister Tharman Shanmugaratnam made the observations at the closing session of the FutureChina Global Forum, highlighting that there were silver linings for China's economic transformation.
"China is unique in having a clear destination, and having a direction to travel, that is also clear," he said.
"The destination is now a little more modest in ambition, following the Fifth Plenum last year, and the travel a little slower than expected, but the destination is clear, the direction of travel is clear."
The Straits Times is a media partner of the forum held at the Shangri-La hotel.
Mr Tharman said the United States and Europe faced both "unclear" and "undefined" destinations.
"In Japan, the destination implied in Prime Minister Abe's 'three arrows' reform programme is clear, but the current direction of travel is unclear. In fact, two of the three arrows are moving in the wrong direction, he added.
Mr Tharman said that productivity growth was key for China. While it had, in the past, gained "easy productivity growth" from the mass movement of people from low-productivity to high-productivity sectors, the era of macro-allocation of resources is over, he said.
He said China's productivity was still only 20 per cent that of the US, with tremendous scope for growth.
Even within China, Guangzhou's level of productivity is many times that of Yunnan's, for instance. The great internal disparity shows potential gains in productivity, he said.
However, Mr Tharman spoke of the severity of China's mounting debt problem, which the International Monetary Fund warned Beijing about last month. It estimated China's debt has swelled to about 145 per cent of gross domestic product.
While he saw no risk of a financial crisis, he emphasised the "economic cost of not dealing with the short-term problems".
"Postponing the recognition of short-term problems hurts growth in the long term. In particular, delaying the recognition of bad debt and keeping them afloat by using new credit to pay off old credit eventually leads to a larger fallout," he warned.
As China moves to reform its industries, particularly in coal and steel, about one to two million employees are expected to lose their jobs. Mr Tharman warned of the social implications, saying the international experience has been discouraging.
"Depressed areas stay depressed for a very long time in the industrial world - think of south of Wales, northern England. Even US cities that have regenerated themselves, like Pittsburgh or Akron in Ohio, they created new jobs for young people. Most of the old guys who lost their jobs are still jobless."
While there were massive lay-offs during China's restructuring in the 1990s, the expected smaller number of workers laid off will not be easier for China, he added.
"Let's not assume it will be easier, because it's geographically concentrated, and the displaced workers are now older and not as easily absorbed. And don't assume that because China does not have a political democracy that the political problem is easier," he said.
But he noted that at the same time, "social policy reforms are a very important, quiet story taking place in China".
China has sought to reform its healthcare and education systems, pledging to spend 11.1 billion yuan (S$2.2 billion) to subsidise public hospital reform this year and standardising university entrance exams.
It has also pledged to set aside up to 100 billion yuan to help resettle coal and steel workers.
"China has a very strong chance of emerging in five years time a transformed economy, not up to its maximum ambition, but still a transformed society," he said.
