Reshaping the world economy through reform, opening up and cooperation

As China celebrates its 35^th year of participation in the Annual Meeting in Davos and looks ahead to the Annual Meeting of the New Champions 2014 in China, here is a special message from Premier Li Keqiang on the state of the Chinese economy. The Chinese version is available here.

A new year marks a new beginning and brings new hope. The World Economic Forum is a barometer for observing the world economy and an important platform of global brainstorming. I believe that with both new positive signs and uncertainties in the world economy, the Forum will certainly pool wisdom, spread confidence and contribute advice.

China is the largest developing country in the world and a member of the G20, the Asia-Pacific Economic Cooperation (APEC) and other multilateral economic mechanisms. Its economic health and trends have a major impact on the world economy.

Currently, the Chinese economy, while maintaining stability, has taken a turn for the better, with notable achievements and improved performance. In 2013, China’s gross domestic product (GDP) grew by 7.7%, which remains mid-to-high growth in the world. The rise of the consumer price index (CPI) was kept at 2.6%. Over 13 million new urban jobs were created, more than in any previous year, and per capita disposable income of urban residents and per capita net income of rural residents rose by 7% and 9.3% in real terms, respectively.

The Chinese economy, on the whole, has enjoyed good momentum of fairly fast growth, relatively stable price levels, expanding employment and income increase. China’s economy has become more closely connected with the world economy and China’s cooperation with the world is further widening. Last year, China’s import, export and use of overseas investment all achieved considerable growth. Total imports approached $2 trillion. Overseas direct investment by Chinese enterprises exceeded $90 billion. Given the lingering international financial crisis, the unrecovered world economy and China’s effort of economic restructuring and upgrading, such a “score report” is indeed a hard-won achievement, proving once again the resilience and vitality of the Chinese economy.

Yet there is something more important than those figures. Last year, despite the sluggish global economy, the once increasing downward pressure on the Chinese economy and some outside prediction that our economy might have a hard landing, we didn’t resort to short-term stimulus policies such as increasing the deficit or monetary expansion. Instead, we took proactive steps to boost economic vitality, stabilize expectations and promote economic transformation. Our focus was to innovate the approach to macro-regulation and rise to the challenges.

First, we started by reforming and opening up. We focused on properly handling relations between the government and the market. We vigorously streamlined governance and delegated power so as to release the dividends of reform. We slashed the number of items to be approved by government at various levels and pushed forward financial reform to make the interest rates of loans more market-based. We established the China (Shanghai) Pilot Free Trade Zone, instituted a “negative list” management model and relaxed market access. These measures fuelled market vitality and the internal driving force for economic growth and stimulated the enthusiasm of private investment. Last year, the number of newly registered private enterprises reached 2.33 million, up by 30% from the previous year.

Second, we defined a reasonable range of economic operation. The floor we set was a growth rate of about 7.5% and the creation of over 9 million urban jobs. The ceiling was to cap CPI growth at around 3.5%. As long as the economy operates within this reasonable range, we will be able to maintain stability of macroeconomic policies and achieve steady growth by mainly relying on structural reform and market forces. This has significantly boosted market confidence and stabilized people’s expectations. Since the second half of last year, China’s purchasing manager’s index has climbed steadily above the tipping point of 50%.

Third, we readjusted the structure with intensive efforts. We introduced measures to tap the huge market potential and address “weak links” where development is needed. We stepped up development of the service industry by introducing policy measures to promote growth in information, finance, old-age care and health services. We also promoted energy-saving, environmentally friendly and other emerging industries. We persisted in our effort to drive domestic demand and improve supply through structural readjustment and to boost domestic demand through greater openness. And we continued to allow domestic demand to act as the main driver of growth. These measures do not just serve immediate interests. More importantly, they will generate long-term benefit. Last year, the share of services in China’s GDP rose to 46.1%, surpassing that of the secondary sector for the first time. And energy intensity per unit of GDP was reduced by 3.7% from the previous year.

China’s innovative ideas and approaches and new experience in macro-regulation will help ensure that the economy continues to perform well this year and beyond. Moreover, given the numerous uncertainties in the global economy and the unusual sensitivities of the international market to macro-policy developments in major economies, the stable fiscal and monetary policy and reasonable liquidity in China have combined to send a clear signal that stabilizes the international market’s expectations. This is also an act of responsibility by China in the interest of world economic development.

The keynote of China’s economic policy this year is to seek steady progress through reform and innovation. In my view, this is consistent with international expectations for reshaping the world economy. We will follow the arrangements made at the Third Plenum of the 18th Communist Party of China Central Committee, comprehensively deepen reform, continue to open up, maintain the continuity and consistency of macro-policies, actively boost domestic demand, and promote steady economic growth. When readjusting the structure, we will focus more on quality, efficiency and upgrading. We will work even harder to narrow the two major gaps between urban and rural areas and among different regions. We will take more effective measures to create more jobs, reduce poverty and help those in need. This will lead to greater social equity and enable the entire population to share in the benefits of development. The sustained and sound development of the Chinese economy will also offer new opportunities and inject new impetus to development of the world.

The international financial crisis that started in 2008 and the difficulties facing world economic recovery in the following years have raised many new tasks for the adjustment and improvement of the world economic system and architecture. Some economies have shown clear signs of recovery. But there remain uncertainties and factors that are not conducive to stability. All these cry out for in-depth adjustment and change. I therefore find it most fitting and relevant that the Forum convenes its Annual Meeting with “the reshaping of the world” as its theme.

To reshape the world economy, it is important to institute and improve an open, cooperative and win-win global economic and trade system. The international community should continue to work towards diversity, openness, inclusiveness and mutual benefit, and uphold the post-World War II international political order and the world environment for peace. It should enable the multilateral trading framework with the World Trade Organization at the centre to play a more positive role. It should explore regional trade arrangements in various forms, and resolutely reject trade and investment protectionism. China maintains that economies at different development levels and phases should embrace the spirit of solidarity in difficult times, discard zero-sum practices, and join hands to meet common challenges. Developed and emerging economies in particular should bring out their respective strengths to drive global economic growth by acting as the “double engines” of the global economy, reinforcing and benefitting each other. This way, we will open up a new prospect of economic globalization featuring win-win cooperation.

The international situation is stable on the whole. And the world faces both new opportunities and many challenges for peace and development. China, as a responsible major country, will be firmly committed to the path of peaceful development, make greater contribution to expanding the common interests of mankind, and play a constructive role in advancing the lofty cause of world peace and development.

China will be steadfast in its pursuit of modernization. We look forward to closer cooperation with other countries so as to move the world economy out of the dark shadows of the international financial crisis as soon as we can and bring it onto a broad and bright path of strong, sustainable and balanced growth. The World Economic Forum Annual Meeting is held in winter. What it heralds, though, is spring, which will not be far behind.

Author: Li Keqiang is premier of the State Council of the People’s Republic of China.

Image: Premier Li addresses the World Economic Forum’s Annual Meeting of the New Champions in 2013