Reform, innovation for sustained development

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FIVE years have passed since the outbreak of the international financial crisis in September 2008.

Li Keqiang

Yet the world economy still faces a complex situation. Just as developed economies begin to show some signs of improvement, emerging economies are confronted with rather serious downward pressure. As we often say in China, “Hardly has one wave subsided when another wave rises”.

Affected by multiple factors, economic growth in China has slowed down to some extent.

For some time now, there have been many comments on the Chinese economy, wondering whether it may slow down too early, like in some other countries, or even encounter a hard landing. What I would like to say is that the Chinese economy, which is at a crucial stage of transformation and upgrading, is moving forward in a steady way and its fundamentals are sound.

Economic growth in China went down from 7,9% in the fourth quarter of last year to 7,7% in the first quarter and 7,5% in the second quarter of this year with a reduced increase in consumption, investment and foreign trade.

There was a registered negative growth in the central government revenue, which has been rarely seen for many years. Confronted with downward pressures, we stayed committed to the overall policy of seeking steady economic progress.

We took a host of innovative policies and measures with a holistic approach to pursue steady growth, conduct structural readjustment and promote reform, which served to ensure a smooth economic performance.

First, keeping the macro-economic policy stable with consideration given to both immediate and long-term needs. In the face of economic downturn, a short-term stimulus policy could be one way to drive up growth.

But after weighing the pros and cons, we concluded that such an option would not help address the underlying problems.

Hence, we opted for keeping the macro-economic policy stable, which we believe served both the immediate needs and long-term interests of the economy.

With respect to fiscal policy, we introduced policy measures that kept the deficit from expanding, readjusted the expenditure structure, cut down administrative expenditures, accelerated spending, increased support for the central and western regions as well as for structural readjustments and for improving people’s wellbeing, and granted preferential tax treatment to small and micro businesses.

In terms of monetary policy, we stayed focused, responded calmly and met difficulties head-on. We did not relax or tighten the monetary policy in spite of the short-term fluctuation in the money market, and properly managed liquidity.

We supported the real economy mainly by making good use of both the stock and the increment. At the same time, we strengthened supervision and improved regulation to prevent and defuse potential risks in the fiscal and financial sectors.

Regarding the local government debt issue, which has become a source of concern, we are taking pertinent measures to regulate and address it in an orderly fashion. Here, I can say with certainty that the situation is on the whole safe and manageable.

Second, steadfastly pursuing reform and opening-up with priority given to the stimulation of the market. Reform and innovation provide an inexhaustible driving force for a country’s development.
What this government has done first is to vigorously reform the administrative system with focus on transforming government functions.

Since the beginning of this year, we have abolished or delegated to lower levels the conduct of administrative review and approval for over 200 items.

By streamlining administration and delegating power, the government aims to delegate power to lower levels as much as what is necessary and appropriate while effectively managing all the matters within its purview so as to provide a level-playing field for all enterprises and stimulate the creativity of market players.

We have expanded the scope of the business-to-value added tax pilot reform, and advanced reforms relating to market-based interest rates, the investment and financing system for the construction of railways and other infrastructure, pricing of resource products and government procurement of public services.

We have accelerated the reform of economic structure, endeavoured to develop a mixed economy, relaxed market access in the financial, oil, electricity, railway, telecommunications, resources development, public facilities and the services sector, encouraged more investment of the non-public sector, and provided greater space for business of various ownerships.

China’s modernisation will not be accomplished without reform, nor will it be achieved without opening-up. We have explored new ways to open China wider to the outside world.

In the first half of this year, we signed Free Trade Area (FTA) agreements with Switzerland and Iceland, and we have recently discussed with ASEAN leaders on how to upgrade the China-ASEAN Free Trade Area.

In our effort to build a pilot-free trade-zone in Shanghai, the negative-list approach will be explored and priority will be given to easier investment access and greater openness in trade in services.

We have also adopted measures to facilitate foreign trade and promote a steady growth in import and export.

Third, readjusting and optimising the structure with emphasis on transformation and upgrading. China is now at such a crucial stage that without structural transformation and upgrading, we will not be able to achieve a sustained economic growth.

In readjusting the structure, the most important aspect is to expand domestic demand, and a major task is to pursue a balanced development between urban and rural areas and among different regions.

We will rely mainly on industrialisation, new type of urbanisation, IT application and modernisation of agriculture and focus on developing the service sector which is of strategic importance.

We are cultivating new growth areas of consumption and implementing the “Broadband China” strategy. We will enhance the weak links and invest more in energy conservation and environmental protection, redevelopment of shantytowns, infrastructure in urban areas, and railways in the central and western regions.

We are stepping up support for contiguous and concentrated poverty-stricken areas.

We have adopted special policy measures to promote old age care, health, cultural, educational and other services.

We are implementing the strategy of innovation-driven development at a faster pace, aggressively promoting technological innovation and deep integration of science and technology with the economy and building a social environment friendly to innovation and business start-up activities.

Since the start of this year, China has been rather successful in co-ordinating efforts to seek steady growth, conduct structural readjustment and deepen reform, and this is mainly attributable to innovation in macro management.

Seizing the growth potential and acting to address the need in reality, we have set a reasonable range of economic performance with a lower limit designed to ensure steady growth and job creation and an upper limit which is meant to avert inflation. The limits are also seen as benchmarks for anticipatory regulation measures.

We have also developed a macro policy framework in keeping with the reasonable range of economic performance. As long as the economy runs within the reasonable range, we will keep the macro-economic policy generally stable, and focus on shifting the growth model and on structural readjustment.

In this connection, what is essential is to advance reform and innovation, tap potential domestic demand, and unleash innovation motivation and reform dividends in order to boost market vitality and the internal driving force for growth and upgrade the Chinese economy.

These measures have brought about a sound momentum of stable economic performance in China.

In July and August, the Purchasing Managers Index, Producer Price Index, industrial value-added, import and export, power consumption, freight volume and other major indicators all rebounded; the real economy was active; the urban employment situation continued to improve and prices were generally stable with enhanced market confidence and growing public expectations.

lThis is part of a speech by Li Kequiang, the Chinese Premier, last week at the World Economic Forum Annual Meeting of the New Champions 2013 held in China