With economic growth underpinned by unsustainable investment and concern over levels of debt, fintech and mobile payments innovation could drive China towards an era of social modernisation.

China's governing Communist Party today commenced its five-yearly, closed-door summit where the party discusses the country's direction for the next five-year period. Reflecting what some Western economists have been saying for many years, President Xi Jinping said in his three-hour opening address that China is now in a "new era" and is in a position to "take centre stage in the world".

While one of the biggest focuses during Mr Xi's first term was the anti-corruption drive targeting public officials, his speech indicated that the next five years will see more focus on economic modernisation. Mr Xi promised to lower barriers for foreign investors and to introduce environmental and economic reforms that will modernise the country by 2050. So what are some of the economic indicators and shifts that we are currently seeing in China?

Growth – but not sustainable

China's economic indicators are positive. GDP is expected to exceed 6.5 per cent in 2017 (and could be even higher than last year's figure of 6.7 per cent). However, much of this growth is underpinned by heavy infrastructure spending, which is not a sustainable driver of growth, as well as the property market, which local authorities in China are seeking to regulate to avoid a property bubble. Consumer confidence and consumption are high and account for an increasing amount of GDP. The Financial Times's Gabriel Wildau writes: “Global sentiment towards China has improved dramatically since last year, when concerns about capital flight and excessive debt led many foreign investors to conclude that policymakers were losing their ability to control risks.”

Problems with China's smaller banks

This rosy picture doesn't quite tally with some of the less positive economic indicators coming out of China, not least its credit rating downgrade by Standard & Poor's (S&P) last month, due to the heavy borrowing that has been fuelling much of the country’s strong economy. S&P warned that China has been borrowing too heavily to sustain its growth. Writing in Euromoney, Chris Wright calls it a “Tale of two Chinas”, noting that, while the economy is certainly looking robust and some of the top banks are working transparently to reduce non-performing loans and disclose bad debts, there are other problems “further down the banking hierarchy”. Wright states: “It is possible, then, to think that China is doing fine while its smaller banks are in a world of trouble.” And he continues that the following is also possible: “that the debt-equity swap mechanism to reduce state-owned bad debts has so far been a failure, that some banks have been flat-out stupid in their exposures, that reform of state-owned enterprises has been sluggish and that imperilled banks will not regain a surer footing until that reform makes some tangible progress.”

China's focus on fintech

Of course, the shape of China's economy is likely to change profoundly in the next 10 years. One thing that could provide the momentum for President Xi's modernised, social economy could be the rise of China's domestic fintech innovators. Tencent and Alibaba are now among the top 10 biggest public companies in the world and the country is moving steadily towards mobile payments. Geoffrey Garrett writes in Knowledge@Wharton that China now has a massive lead over the US in terms of mobile payments and is now innovating rather than imitating.