China celebrated another achievement last week, as Mo Yan became the first Chinese citizen to win a Nobel Prize for literature. The selection of Mo was praised by a Chinese nationalist tabloid as a sign that mainstream China could “no longer be refused by the West for long.”

Mo grew up in Shandong province in northeastern China, and during the Cultural Revolution, he left school to work in the fields, finishing his education in the army, according to The Guardian. The author draws upon his rural upbringing in his novels, mixing historical perspective with mythical elements. His real name is Guan Moye, but he chose “Mo Yan” as a pen name meaning “don’t speak,” to reflect the culture in which he grew up.

The new Nobel laureate is of the same generation as the new leaders set to take over the Politburo Standing Committee next month after the convening of the 18th National Congress of the Communist Party of China. This group of men (and one female contender) are “old enough to remember the suffering of the Cultural Revolution, but also young enough to fully experience how China has grown through Deng [Xiaoping]’s opening of the economy to market forces,” says CLSA China Strategy research.

They’ve seen vast political reforms take place, transforming China “from a country ruled by the contradictory personal whims of Mao to one ruled through institutions and rules,” says William H. Overholt in The Washington Quarterly. During these decades, “freedoms blossomed, affecting everything from clothing to haircuts to job or marital choices to social and political speech,” says Overholt.

As a result of these policies, they’ve been able to witness China’s incredible growth, with GDP averaging 10 percent per year and more than 500 million people moving out of poverty over the past 30 years.

Now after three decades of tremendous expansion, this new generation of leaders will have to carefully maneuver the country into the next decade, towing the line between maintaining the stability created during the previous Hu-Wen administration and continuing the political and economic reform necessary to adjust to the country’s slowing growth.

China’s pyramid of power is headed by the Politburo Standing Committee (PSC), which will likely have seven to nine new members led by Vice President Xi Jinping and Vice Premier Li Keqiang, selected by a vote of the Central Committee.

Unlike prior committee members who were mostly engineers, the new PSC members have varying liberal arts backgrounds, including history, law and economics, which may help to “address social concerns after decades of focusing mostly on growth,” according to CLSA.

These leaders tend to be more globally aware than their predecessors. They are better traveled, and many have family members, relatives or friends who have gone to school overseas and have foreign residency. “The rapid proliferation of mobile phones, broadband, internet has made unbiased information much easier to access,” says CLSA.

Incoming President Xi Jinping is a princeling who was born into privilege as the son of Xi Zhongxun, who was among the first generation of Chinese leadership and “one of the most liberal leaders under Deng.” His father’s claim to fame was in creating a special economic zone in Shenzhen, which transformed the area from a small village to one of the fastest-growing cities in the world and one of the busiest container ports in China.

Premier Li Keqiang comes from a more common background, as his father, Li Fengsan, was an official of the local government. After the Cultural Revolution, Li was one of the “Class of ’77” when only 273,000 people won admission to universities out of a total of 5.7 million candidates. (By comparison, 58 percent of nine million people in 2007 won admission to universities, according to a 2008 article in The New York Times.) He spent 16 years at the Central Communist Youth League, and then 10 more years in the Henan and Liaoning Provinces before becoming a member of the standing committee.

Underneath the PSC is the Politburo with 25 members, then the Central Committee with 371 members, who then dictate to more than 80 million Communist party members.

So what direction will the next generation of leaders take? This remains a “great enigma,” says Overholt. Xi has been “extremely cautious” about stating his opinions, however, “he has the confidence that comes from being a princeling and from having some military background.” In addition, the other members of the PSC have agendas that are “ambitious and outspoken.” The tensions and inconsistencies that exist within the committee members could be “creatively dynamic or immobilizing,” says Overholt.

CLSA believes that the new leadership will likely push for reform since they will be “forced to adapt to China’s slowing growth.” The research firm says that historically, large reforms successfully occurred after a crisis, including Tiananmen Square and the Asian Financial Crisis.

A nearly 500-page document by the World Bank and China’s Development Research Center of the State Council may give “promising insight into China’s future policy,” says CLSA. The comprehensive report called China 2030 identifies a long-term strategy for Chinese policymakers. The report says that “after more than 30 years of rapid growth, China has reached another turning point in its development path when a second strategic, and no less fundamental, shift is called for.”

It irons out six areas that need to be addressed:

1. Structural reforms to strengthen the foundation for a market-based economy need to be implemented
2. Innovations need to be accelerated
3. The country should pursue “green” opportunities
4. All citizens need opportunities and social security
5. The fiscal system needs to be strengthened
6. China needs to seek mutually beneficial relations with the world

The report concludes by saying that “a successful outcome will require strong leadership and commitment, steady implementation with a determined will, coordination across ministries and agencies, and sensitive yet effective management of a consultation process”  that encourages the support of the public. The potential for China to be a “modern, harmonious, and creative high-income society” is there, however, “achieving this objective will not be easy,” says the report.

In November, the U.S. will be focused on its own political situation as Americans head to the polls. While staying active and involved in national politics is important, I believe it’s just as vital to pay close attention to how the leadership change will unfold in the second-largest economy in the world.

With a greater international exchange of ideas, goods, services, and talent today, our world has never been more wired and connected. Globalization has wholly transformed how people across continents absorb information and interact with each other. I believe it also has subtly changed how we think and act as individuals.

Take the unfortunate consequence of globalization after the anti-Muslim “movie” was posted online. Middle East violence against the U.S. erupted because of drastically conflicting ideas between freedom of speech and derogatory insults against a religion. In a recent Foreign Policy blog, Abdulaziz H. Al-Fahad calls for mutual tolerance in our “shrinking world,” explaining, “The world is increasingly pulled together by the relentless push of modern technology and integrated economic systems on the one hand, and simmering conflicts periodically manifested on the cultural realm, on the other.”

Events need not be so significant to make a difference. I recently revisited the ideas from one of my favorite business books, The Tipping Point, in which bestselling author Malcolm Gladwell uses real-world examples of little things that spread like wildfire. He says that “the best way to understand the emergence of fashion trends, the ebb and flow of crime waves … or any number of the other mysterious changes that mark everyday life is to think of them as epidemics.”

Facebook has been incredibly infectious. Since its miniscule beginnings at Harvard eight years ago, the social media site’s popularity as an online place to connect and exchange ideas and photos has proliferated, attracting 1 billion monthly active users today. This figure is nearly 15 percent of the world and three times the size of the population of the United States.

According to ITU World Telecommunication, 2.3 billion people worldwide were using the Internet at the end of 2011—that means that a significant portion of the online world has a Facebook account.

The Super S-Curve in global population is also significantly affecting our ideas, opinions and ways of life. While it took about 150 years for the world population to grow from 1 billion to 3 billion people, it took less than 15 years to add the next subsequent billion. Now there are 7 billion of us, with many people on the planet acquiring a little more wealth every year. The World Bank said that about 1.3 billion people around the world live on less than a $1.25 a day. This is the lowest number of people ever.

Back when the world only contained 3 billion people, the economic and political footprint of India and China did not exist. Now the two most populous countries in the world are pursuing policies that are encouraging economic growth and improving standards of lives for their residents. I believe these countries are creating a domino chain of reaction felt around the world.

In The Washington Quarterly, William Overholt from Harvard’s Kennedy School of Government outlined his view on how China’s economy will develop as the pyramid of power shifts to new leadership. He says many see China as a “successor to British and U.S. leadership through globalization,” and one final step in that global direction is to develop a “globalization of talent” in the country.

To that end, China insists that all residents must take seven years of English before graduating from high school. Many elite families in the country have children in Ivy League universities, and Chinese vice ministers much spend a semester at Harvard “to ensure their understanding of global best practice.”

In addition, more than 70 percent of Chinese university presidents and research lab heads obtained Ph.D.s from foreign institutions, says Overholt.

Time will only tell whether China takes over as the world’s largest economic superpower. What’s important for investors is to be aware of the ideas and behaviors that are catching, and how our social networks can be contagions, as suggested by Harvard’s Nicholas Christakis in a recent TED Talk.

Likewise, Gladwell shows how minor changes in our external environment can have a dramatic effect on how we behave and who we are.

Next time you read a headline on your TV, phone or newspaper, I hope you are inspired to think of ways that local and global biases and opinions infiltrate your world.

The ECB calmed the markets—will China act next?

After Mario Draghi announced the European Central Bank’s new bond buying program, I was the first guest on CNBC Asia’s Squawk Box to weigh in on this decision. I reiterated my stance that the endgame for Europe would be to print money, which will eventually lead to currency wars. These actions are positive for gold and also for increased economic activity.

See another conversation on ECB and gold with Squawk Box here.

China too has kept investors on the edge of their seats, as we wait for some monetary or fiscal action. Everyday that goes by with no significant policy decisions from the Asian giant causes the market to lose confidence in its ability to steer its ship. Even the most optimistic bull can be vulnerable to a loss of confidence.

It often helps to gain a different perspective, which is what a business trip halfway around the world can provide.

I’ve been traveling in Singapore and Hong Kong and I continue to be amazed by the juxtaposition of the vibrancy of the Asian continent compared to investor sentiment in the States. It’s a subtle difference, but you can see it in the faces of people walking the cities, you can feel it when talking with local entrepreneurs and you can read it in a speech from local government leaders.

Singapore’s Prime Minister Lee Hsien Loong provided a beam of light to a Beijing audience only days ago. During his speech at the Central Party School, the prime minister discussed China’s significance in the world as it relates to political relations, government policies, and world trade. He also touched on his country’s role in facilitating a solid relationship between the Asian giant and the world’s largest economy.

By nature, public speeches are meant to be uplifting, as they tend to reflect on a long period of history and focus on positive solutions. However, I believe new opportunities cannot be found when all hope is believed to be lost.

You can read his speech here.

The prime minister acknowledges China’s “serious and complex challenges” that it is facing after decades of significant growth. He says that its economic, social and political reforms are difficult for any nation to handle, “let alone one the size of China.” He believes it’s to be expected that “China’s leaders are preoccupied with these domestic priorities.”

However, China will not be tackling this alone, as the world has become so “inter-connected and inter-dependent,” with growing world trade, interlinked financial markets, and the growth of the Internet bringing one third of the world online today.

You can see how synchronized world economies are today by comparing manufacturing output. In August, China’s Government Purchasing Manufacturing Index (PMI) crossed below 50 for the first time since November 2011. (Remember that a reading of 50 marks the critical line delineating expansion from contraction.)

The U.S. ISM Manufacturing PMI also crossed below 50, with a reading of 49.6 in August. JP Morgan’s Global PMI came in at 48.1, and it’s been below 50 for the last three months.

Over the past decade, China has experienced incredible growth because of globalization. On one measure alone, the prime minister pointed out that more than one billion line workers, engineers, scientists and entrepreneurs are joining the international economy to develop, serve and produce goods for markets around the world.

Stephen Roach, a senior fellow at Yale University and author of The Next Asia, says China’s “grand plan” is to move from the “producer model, which worked brilliantly for 30 years” to one that needs to provide higher-paying, less labor intensive jobs, in new fully functional cities to the 350 million who are estimated to move to an urban area in China over the next 15 years. To paraphrase Marshall Goldsmith’s self-improvement book for business executives, what got China here, won’t get China there.

The Asian giant can take a few lessons from its developed neighbors, says BCA Research. China has already experienced a tremendous population shift from its farms and rural areas to the cities in search of higher paying jobs. But there comes a tipping point when labor supply in the cities goes from “feast to famine,” says BCA.

The research firm says in the previous cases of Japan, Korea and Taiwan, there have been similar employment phases. First, when industrialization just begins, “demand for labor is strong, but wages are low because of plentiful supply.”

Then, wages grow faster than labor demand. This is what we have been seeing in China today, as urban per capita income far exceeds rural incomes.

The last stage of this development that other Asian nations have experienced is when “wage growth accelerated and the wage gaps between the manufacturing and agriculture sectors disappeared,” according to BCA. Their research shows that cheap labor in manufacturing ends while growth of wages accelerates in both cities and farms.

It’s only a guess when China will make that labor shift to the stage where manufacturing sector competes with agriculture for jobs. BCA compared manufacturing employment to agriculture employment of Japan, Korea and Taiwan, looking at when these countries’ ratio rose above 1. In Japan, manufacturing labor shortages started in the early 1960s, for South Korea, it was around 1975-1976. Taiwan began experiencing this phenomenon around 1970.

Based on this ratio, it’s estimated that labor shortages could become more common around 2014-2015 for China, says BCA.

Until that tipping point is reached, China “will continue to need higher value-added, less labor-intensive production to sustain exports; policy and productivity will be critical to a continuation of the ‘growth miracle,’” according to BCA.

The way China will accomplish this is through good relations with the U.S., as well as taking an interest in making sure Asia is stable and prosperous. Loong believes the Chinese economy “depends on an open, inclusive and fair global trade system to thrive. It needs a stable external environment, and good relations with other countries, so that it can focus on economic development,” says Singapore’s leader. In Loong’s view, “China is no longer an isolated, self-sufficient Middle Kingdom.”

One example of how China will be engaging the world in its future growth is through its current energy policies. While 70 percent of the country’s energy consumption is coal, oil is the second source of energy, at nearly 20 percent of total energy consumption, according to the U.S. Energy Information Administration (EIA). In 2010, the country consumed an estimated 10 million barrels per day.

China only produces about 4 million barrels per day, and imports the remaining amount, making the Asian giant the second largest importer of oil, says the EIA. The largest importer of oil in the world has been the U.S., with an intake of 8.7 million barrels per day, according to the EIA. Japan imports the third most oil, at 4.3 million barrels per day.

The country currently has a diverse variety of sources from which it receives its oil, with most of the crude oil imports coming from Saudi Arabia, followed by Angola, Iran and Russia.

The country’s energy policies appear to be focused on three goals: 1) fulfill its growing demand for oil and reliance on oil imports, 2) diversify import sources to reduce its risk of supply disruption, and 3) develop technical expertise in unconventional resources. One way to accomplish these goals is through overseas acquisitions, which we’ve previously discussed. “China is taking advantage of the economic downturn to step up its global acquisitions and use its vast foreign exchange reserves (estimated at over $3 trillion in 2012) to help purchase equity in projects or acquire stakes in energy companies,” says the EIA.

A Hint of Action Arrives
World markets may not have to wait much longer for Chinese policymakers to act, as the government recently announced new infrastructure projects. According to Bloomberg, China approved 25 new subway construction projects, with related investments estimated to be more than 840 billion yuan. Railway, subway and construction stocks in China increased on the news.

Stephen Roach concludes his discussion about China this way: “A growth slowdown is hardly shocking for an export-led economy. But China is in much better shape than the rest of the world. A powerful rebalancing strategy offers the structural and cyclical support that will allow it to avoid a hard landing.”

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The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.