China's economy surprised many observers in 2017. Notable achievements include economic growth of an estimated 6.8 percent, combined with relative stability. Investment continues to be high, combined with rising real wages in much of the economy. Notably, absolute poverty has been reduced – according to official figures, the living standards of a further 10 million are expected to rise above this threshold in 2017. Another achievement is policies to tackle environmental sustainability are starting to have a real impact. Air pollution has been one of the most visible downsides of rapid growth, affecting much of the population, especially in northern China. Yet this improvement has been painful in some areas, as the transition from coal to natural gas and energy alternatives has not been smooth. Such problems are not unique to China, as they were faced historically in the mid-20th century in cities such as London and Los Angeles. But what are China's 21st-century challenges in 2018?

One challenge is further upgrading China's businesses. The move from a middle income economy to a developed one demands added value to products and services through innovation. For example, in Ningbo our research shows upgrading requires manufacturing to raise its technological level and enter higher value fields like aerospace. Elsewhere, it may mean relocating labor-intensive manufacturing to other parts of China, or to less prosperous One Belt One Road countries, to make way for higher value opportunities. Meanwhile, reform of state-owned enterprises must continue so Chinese businesses become truly internationally competitive, not just on price but also quality, design and marketing.

Another challenge is maintaining momentum in opening up China's economy. Open markets for goods and services provide the impetus for Chinese businesses to be competitive. China's large internal market can help support innovative new businesses, as in the USA. Well-targeted opening up of financial markets and international investment can accelerate upgrading. Outward investment is now comparable with inward foreign investment. However, the capability of Chinese businesses to work globally needs strengthening, an area where our business school is working closely with companies like CRRC and AVIC. Simultaneously, China needs to recognize its economic development will lead to greater demands for reciprocity — not only in trade, but in treatment of foreign investment.

The third challenge is to address environmental and social issues arising from rapid development. Continued progress in tackling environmental pollution will require a wide range of policies and incentives, including but not limited to the recently announced carbon trading system for power generation. Socially, the rise in inequality that accompanied rapid growth is a major challenge, as is the affordability of housing in major cities such as Beijing and Shanghai. In the longer term, failure to address inequality and ensure financial inclusion will create major problems, such as providing pensions for China's aging population.

So China's substantial economic achievements in 2017 highlight challenges of success in 2018 and beyond: upgrading and opening up, as well as environmental and social sustainability.

The author is professor Martin Lockett is dean of the Nottingham University Business School at the University of Nottingham in Ningbo, China.

The opinions expressed here are those of the writer and do not represent the views of China Daily and China Daily website.