Alhough there has been frequent mention about China's growing soft power, it is equally important that it takes steps to harness more soft assets, a top industry official said.[Hong Kong company registration]

"It is high time that China starts focusing more on soft assets such as education and research at colleges and universities," said Roger Dassen, global managing director, clients, services and talent, Deloitte Touche Tohmatsu Ltd.

"China has proven to be very good at providing hard assets such as airports, highways and many industrial zones. But in contrast, more attention should be turned to soft assets," Dassen said. Soft assets are necessary to make China, and indeed any country, become a strong player in the global economy, he said.

In many countries there is a lot of emphasis on mathematics physics and technology, which is absolutely necessary, he said. "If you think about the reguirement in this society 10 years from now, you will see that many routine and non-routine tasts will have been automated. You will need people who are able to work in such an environment. And those require structural investments that have to be made, both by public sectors and private firms," he said.

There is also a need for "structural investment" from both public and private firms in this regard, he said.

Citing the European Union as an example, Dassen said that because of its preoccupation with finding solutions for the sovereign debt crisis and the high unemployment situation, EU has been unable to focus on other growth opportunities.[Hong Kong Company Formation]

"We've seen that the European Central Bank's programs related to massive bailout were successful in mitigating the collapse of the euro system. But, we see the problem is that Europe primarily focused on solving its short-term issues rather than gearing up for the future and making the necessary investments to remain a strong global player," said Dassen.

In contrast with Europe, is over investment an issue in China? After all, local governments are believed to have accumulated debts of more than 12 trillion yuan ($1.93 trillion), he said. Most of these debts were guaranteed by land, which lead to the concerns that if real estate market bumped into a drastic adjustment, are local governments able to repay the debts?

There are two kinds of investment - one that comes with good returns and the other with no returns.

"What we are seeing in China is a lot of good investments with good returns," Ken DeWoskin, director of China Research and Insight Center with Deloitte, said, adding that there are also "a lot of worrisome investments".

Driving down from Haikou, capital city of South China's Hainan province, to Boao, the venue of an annual pan-Asia forum, one can see several residential properties along the road that are empty or unfinished, he said. "They are all examples of bad investments," he said.

"If you have too much investment that does not generate good returns, debt is bound to pile up and lead to more non-performing loans. If you have too many bad loans, then everybody's attention, including that of the newly-elected Chinese leaders, would be on the debt problem and not on growth any longer," he said.

Parallel to the two kinds of investment, there are also two kinds of innovation at the corporate level - one that creates real market value and the other that does not, said Dassen and DeWoskin.

The first kind of innovation lies in leveraging technology and business model innovation to be responsive to, or generate, market demand in the real economy. Examples include Google, Tencent, or Starbucks. There is also the type of innovation that primarily focuses on avoiding regulatory or policy based burdens.

There are other Chinese companies that claim to be innovative but are actually innovative only in getting around government regulations, DeWoskin said, arguing that the government can [Offshore Company Incorporation]play a role in promoting the right business conduct by creating a supportive environment for innovation.

The first task for such a journey would be to step up the reform of State-owned enterprises. "We have several big State-owned enterprises in China. They have great access to the capital market and talent. But currently what has made these companies global players is their sheer size. Most of them are really not global players on a competitive basis, although I think that is what they can and should aspire to," said Dassen.

These SOEs need continuing reforms to lift their management and competitiveness to a higher level, he said.

Both Dassen and DeWoskin concur that Deloitte China has been playing an active role in SOE reform. Many Chinese private companies and SOEs are now teaming up with global consultancy firms such as Deloitte for professional advisory services.

"They want to be more efficient and use capital more efficiently. Financial management and capital efficiency are big topics in our discussions with SOEs," DeWoskin said.

A slow progress in SOE reform will affect the overall health of the Chinese economy, they said, pointing to a surge in State-sponsored investment, very fast growth in credit and money supply and extremely fast appreciation of real estate assets.

Taking reference from previous crises, Dassen said the sustained and rapid appreciation of assets, especially real estate assets, is always a precursor to the destructive adjustment of asset prices.

Related signs of such a phenomenon are the higher level of short-term borrowings at unusually high interest rates, rapid diversification of large and small financial players, most of which is outside the purview of regulators.

Dassen also said that the rapid introduction and spread of wealth management products is another area of concern. Most of these products are poorly regulated and not well understood by the companies and individuals investing in them.