Asia Briefing: Chinese premier ready to get his hands dirty
Li Keqiang promises to address some of the key problems facing the Chinese economy, although some of these challenges look immense
Premier Li Keqiang is the Chinese leader tasked with co-ordinating the programme of economic reform that is the main plank of the new leadership’s policies, and at the World Economic Forum in Dalian, the “Summer Davos”, he wowed attendees with his talk of sustainable reform.
His speech was one of the boldest statements yet that president Xi Jinping’s government, which took office in March, is serious about reform, although the details on how Beijing will tackle some of the biggest challenges remain vague.
In response to fears that the Chinese economy is heading for a hard landing, the premier said: “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.”
He acknowledged that economic growth in China fell from 7.9 per cent in the fourth quarter of last year to 7.7 per cent in the first quarter and 7.5 per cent in the second quarter of this year, with a slowing increase in consumption, investment and foreign trade, as well as negative growth in government revenue.
“Confronted with downward pressures, we stayed committed to the overall policy of seeking steady economic progress,” said Li.
His words in Dalian came just days after he published a sweeping manifesto in the Financial Times in which he said: “We can no longer afford to continue with the old model of high consumption and high investment. Instead, we must take a holistic approach in pursuing steady growth, structural readjustment and further reform.”
“Reform remains the driving force. We will continue to streamline government and delegate power, press ahead with structural changes and grow economic sectors under diverse ownership. Government will leave to the market and society what they can do well while concentrating on those matters within its purview.”
At Dalian, Li promised to address some of the key problems facing the Chinese economy right now, although some of these challenges look immense.
Artificially low rates
The government is committed to tackling China’s artificially low bank deposit interest rates, which are a major dampener on investment and consumer demand in China, as well as leading to too much money flowing into the property market. This is likely to bring him head-to-head with the state-owned enterprises who have benefited most from low deposit rates, and also requires major banking sector reform.
He dismissed calls for a short-term stimulus plan.
“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,” he said.
Instead the focus was on keeping the deficit from expanding, adjusting the expenditure structure, cutting administrative spending, boosting disadvantaged regions and introducing preferential tax treatment to small and micro businesses.
The government was also taking steps to regulate and address the issue of local government debt, and he described the situation as “on the whole safe and manageable”.
In response to recent complaints by overseas firms about unfair playing fields , Li said China would “create a more investment friendly environment, intensify IPR protection, and provide an environment in which all players have equal access to factors of production, market competition and legal protection while taking up social responsibilities together.”
“Facts will continue to prove that to come and do business in China is a wise decision for multinationals to grow their business.”
Premier Li was a “sent-down youth” during the Cultural Revolution, meaning he was dispatched to the countryside to work as a farmer during the period of ideological frenzy.
In his Dalian speech, he told of how his time as a farmer helped him in his new position, saying that to do a dirty job, you have to be ready to get your hands a bit mucky.
“If the managers of this building have the experience of ‘cleaning the toilet’, I believe they can better manage this complex,” he said.