Nor is it clear what the final make-up of the new Politburo will be, apart from Xi Jinping, the likely successor to President Hu Jintao, and Li Keqiang, the likely successor to Premier Wen Jiabao.

Among the contenders for the other seven places on the Politburo are leading Party officials responsible for the economy, propaganda, domestic security and other areas over which the Party exercises its authority. In the running for seats on the Politburo are Party leaders in some of China’s most important provinces and regions, including the southern industrial powerhouse Guangdong and rapidly growing Chongqing in the southwest, representing a range of views about China’s future direction.

What is clear is that the debate continues in China about how to proceed with the next phase of national economic, political and social development.

The state media has been calling for ‘cultural reform’ and the strengthening of public morals in the world’s second-largest economy, along with moves to tighten controls over social media websites which have fast become forums for information and public expression beyond the government’s control. Others, including some impeccably-credentialed sons and daughters of leaders of the revolution, see strengthening the rule of law and democratic processes as the way forward.

‘In today’s China we are facing tremendous challenges that range from the rapid decline of moral standards, to poisonous and genetically modified food, to rampant official corruption’, Ye Xiangzhen, daughter of Marshal Ye Jianying (who emerged from the Cultural Revolution as the most important figure in the People’s Liberation Army) is reported as saying at a recent meeting of families of the leaders of China’s Revolution. According to this report, Wu Si, editor of the Party history magazine Yanhuang Chunqiu, said the princelings (descendants of the revolution) are motivated by the fact that ‘more and more people [are] claiming they can use methods from the Cultural Revolution to solve the problems of contemporary China’. Mr Wu said the younger generation ‘felt they need another force to fight back and balance the voices. But it went further than that’ he said. ‘There were very strong voices calling for democracy and rule of law and bringing the party under supervision’.

Outside, China is often viewed as an unstoppable economic powerhouse. But keeping the economy on track and managing the enormous social and political challenges that are their daily work now confront China’s leaders with hard choices about fundamental structural reform, including about political reform.

Yao Yang, in this week’s lead essay, argues that this involves nothing less than shifting China away from its ‘production-oriented government’ towards a ‘welfare-oriented’ government. Sound easy? No way. Despite its positive role in promoting China’s economic growth, the production-oriented government distorts the whole structure of the Chinese economy. The most serious distortion driving China’s domestic economic imbalance is caused by a whole set of entrenched policies which favour state-owned-enterprise and penalise households and the private sector.

By encouraging production and paying less attention to welfare improvement, the government suppresses domestic consumption and the improvement of household welfare. China’s households and enterprises put their prodigious savings (about 50 per cent of national income on average) mostly into extremely low-interest deposits in the state-dominated banking sector –– with little effective access for ordinary Chinese to borrow for housing and other forms of consumption –– and lent by it at preferred terms to public-sector enterprises and the business cronies of related officials.

‘Take the example of government infrastructure investment’, Yao says. ‘In any other developing country, increasing infrastructural investment is a virtue. In China, however, government infrastructural investment seems to have passed the productive limit and begun to have a negative impact on the country’. In a recent study of Chinese provinces in the period 1978–2006, Yao and his colleague Chen find that when infrastructure investment increases by one percentage point in a provincial government’s budget, household consumption drops by 0.31 of a percentage point as a share of GDP in that province.

One problem, says Yao, is the legacy of the planned economy, which was given a recent boost by a retreat to government spending during the global financial crisis. ‘But another is the lack of political participation by ordinary citizens. Government officials have strong incentives to pursue economic growth because it suits their own interests, either in the form of direct financial gains or their promotion. But economic growth is not the only concern of ordinary citizens. They also care about health, security for the elderly, housing, education, the environment, equality, none of which is automatically linked with the nation’s average higher rates of economic growth. Allowing ordinary citizens’ voices to be taken seriously in the political process would change the nature of the production government’.

As Yao points out, if you look around the world, societies that were successful in escaping the ‘middle-income trap’ (China’s next challenge) are those ‘that have kept their social structure flat and opened up the political process for democratisation, permitted freer movement of labour, and enhanced the welfare system’. Japan, South Korea, and Taiwan are all cases in point. Their transition to democratisation began when their per-capita purchasing power parity (PPP) income reached around US$8,000. In the next ten years, China’s per-capita PPP income will likely rise from its current US$6,300 to US$13,000.

With the East Asian experience as the benchmark, the next ten years will be a critical period for the Chinese leadership to undertake serious political reform.

Peter Drysdale is the editor of the East Asia Forum.