China is launching a “self-targeted revolution”

The theme for this year’s Annual Meeting of the New Champions – “Creating Value Through Innovation” –  is a most relevant one. Innovation is an eternal topic of the human society and an inexhaustible engine driving economic development. Innovation is vital to the steady recovery of the world economy. Innovation is also essential to upgrading the Chinese economy and improving its performance. And it is thanks to reform and innovation that the Chinese economy has in recent years maintained steady and sound growth.

The global economic environment has remained an intricate one since the beginning of this year. The road to recovery in developed countries has remained bumpy. Growth in emerging market economies has slowed down, and the Chinese economy faces greater downward pressure. Facing this challenging environment, we have continued to follow the general principle of making progress while maintaining stability. We have stayed the course and pursued a proactive approach. Instead of adopting strong economic stimulus or easing monetary policy, we have vigorously promoted reform and economic readjustment. As a result, we have maintained steady economic performance. In the first half of the year, the Chinese economy registered a 7.4% growth, and CPI rise was kept at 2.3%. Despite economic slowdown, between January and August, unemployment was kept at around 5% in 31 big and medium-sized cities. More than 9.7 million urban jobs were created, which is over one hundred thousand more compared with the same period last year.

More jobs were created, thanks to new steps of reform taken. Since the beginning of this year, we have speeded up the reform of the administrative review and approval system. Government departments have removed or delegated to lower levels administrative approval on over 200 items, and the business registration reform, among others, has been carried out nationwide. This has lowered the threshold for starting businesses and removed restrictions on them, thus giving a great boost to business development in the whole country. Between January and August, the amount of newly registered businesses was more than eight million, and from March to August, with the business registration reform, the number grew by 61% over the previous year, all pointing to a massive upsurge which has substantially generated jobs. We have introduced reforms to investment financing, taxation and logistics systems, and further opened the gate for the development of the service sector and other emerging industries. All these measures have been vital in fostering and increasing job opportunities.

The positive changes in China’s economy are not only reflected in the increase of jobs and residents’ incomes, but also in the structural upgrading. We have streamlined administration, delegated powers to the lower levels, and adopted measures such as targeted tax reduction and targeted reduction of required bank reserve ration. All these measures have spurred the growth of the service sector, agriculture, rural area and welfare of farmers, as well as small and micro-businesses and private businesses. In the first half of the year, new businesses and new business models such as e-commerce and logistics and express delivery all developed fast. The number of newly registered service businesses surged by more than 70%. The tertiary industry outperformed the secondary industry in terms of growth rate and share of GDP, and continued to be a leading sector of the economy. The share of private investment in fixed asset investment increased by 1.4 percentage points year on year. High-tech industries and equipment manufacturing grew faster than the industrial average.

Deepening structural readjustment has improved the quality of economic growth. On the basis of carrying out reform and innovation, we have reduced overcapacity and fostered new growth areas. We have promoted business merger and reorganization, and redoubled efforts to conserve energy and cut emissions. By doing so, we have promoted business upgrading and transformation. In the first half of the year, the growth of investment and production of industries with high energy consumption and emissions noticeably slowed down. The per unit GDP energy consumption dropped by 4.2% year on year, and carbon intensity was cut by about 5%, the largest drop in many years. To achieve the same GDP growth, we have consumed less coal, electricity and oil and used less transport capacity.

We have managed to ensure steady growth and improve the quality of the Chinese economy by taking targeted, range-based macro-control measures. With focus on key areas and weak links of China’s economic and social development, we have used more reform and innovation measures to incentivize market entities, strengthen weak links, boost the real economy and ensure that our efforts are well-targeted. This approach, which was also structural adjustment in nature, involved both reform and readjustments. We have strived to remove market obstacles and make the market play a decisive role in resources allocation. We have also endeavoured to improve the role of the government and promote social equity. We have actively tackled the bottlenecks that have long constrained China’s development by balancing domestic and international demands, coordinating regional development, narrowing the gap between rural and urban areas and stabilizing agricultural supply and demand. Over the recent months, we have strengthen the construction of railways in central and western China, the renovation of rundown areas, as well as pollution control and prevention and other livelihood and development projects. All of these have greatly increased the supply of public goods.

Facing the new normal state of the Chinese economy, we have remained level-headed and taken steps to tackle deep-seated challenges. We focused more on structural readjustment and other long-term problems, and refrained from being distracted by the slight short-term fluctuations of individual indicators. In July and August, electricity consumption, freight volume and other indicators fluctuated somewhat. That was inevitable and within our expectation. It was because the domestic and international economic situation was still complex and volatile and year-on-year growth was also affected by base figures. When observing the Chinese economy, one should not just focus on its short-term performance or the performance of a particular sector. Rather, one should look at the overall trend, the bigger picture and the total score. Judging by the principle of range-based macro-control we believe the actual economic growth rate is within the proper range, even if it is slightly higher or lower than the 7.5% target. In particular, we should realize that an important goal of maintaining stable growth is to ensure employment, and the floor of the proper range is to ensure relatively adequate employment. As the economic aggregate continues to expand, growth will mean more jobs and there will be greater tolerance fluctuations. We should also be clear that China’s economy is highly resilient and has much potential and ample space to grow, and we have a full range of tools of macro-control at our disposal. The measures we have taken are good both for now and for longer-term interests, and will therefore enable us to prevent major fluctuations and make a “hard landing” even less possible.

In the four months ahead, we will coordinate the efforts to stabilize growth, promote reform, readjust the structure, improve people’s livelihoods and prevent risks. We will continue to improve and innovate in the thinking and approaches of macro-control, strengthen targeted macro-control on the basis of range-based macro-control, promote structural reform and readjustments, carry out reforms in key areas of systemic importance with every determination to forge ahead and bear long-term interests in mind when addressing current problems. First, we will continue to press ahead with revolutionizing the government itself and further intensify efforts to streamline administration and delegate powers. We will deepen fiscal and taxation reform, issue the decision on reforming the budgetary management system, standardize the transfer payment system and continue to expand the pilot programs for business tax to VAT reform. We will deepen financial reform, promote the pilot programs for non-state owned banks, sort out and standardize the limit requirements on access to the financial sector and develop a multi-tiered capital market. We will deepen the reform of state-owned enterprises. We will deepen price reform and improve the pricing mechanisms for energy products, medicine and medical services. We will deepen reform of the investment system and implement government purchase of service contracting, public-private cooperation models and franchise operations system. Second, we will continue to focus on tackling the deep-seated structural problems, further increase the effective supply of public goods to generate effective demand, increase efficient investment and household consumption and nurture new growth areas. Third, we will continue to ensure efficient use of both the existing and the increase of fiscal and financial resources and further scale up support for the real economy and emerging industries and businesses, for the greater benefit of rural areas, agriculture and farmers, as well as micro-businesses and the service sector. These efforts are aimed at turning the gains of reform into new dynamism of development that would bring more benefit to the people. We have all the confidence, ability and resources to realize the major goals of China’s economic and social development in 2014.

China is still a developing country. We must give to priority to economic development. Only development will deliver progress. Ultimately, it is only development that will resolve all the problems in China. We cannot advance without changing the growth model, nor can we advance without adequate development. Of course, the development we pursue should be one that promotes employment, increases incomes, improves economic performance and boosts energy conservation and environmental protection. It should be scientific development, namely, sound and balanced development that is in keeping with the laws governing economic activities, social development and nature.

Currently, there are many destabilizing and uncertain factors in global economy, and China’s economic development also faces an array of overlapping and deep-seated problems. It is in a critical stage where its path upward is particularly steep. In the latter half of the year and beyond, we will accelerate the transformation of the development model, push forward structural readjustment through structural reform, make good use of the “golden key” of innovation and promote institutional innovation as well as innovation in science and technology. By so doing, we will be able to maintain a medium-high growth rate, move towards medium-high level of development and upgrade the Chinese economy.

We will accelerate the pace of institutional innovation. Innovation has been the ultimate cause of the leapfrog development of the Chinese economy. China’s reform and opening-up is in itself a huge innovation drive as it involves not only technology but more of institution, management and growth models. China’s reform and opening-up for the past three decades and more has in itself been a huge innovation drive, and the huge, untapped potential of innovation and development in the future still lies in institutional reform. Just imagine how big a force it could be when the 800 or 900 million labourers among the 1.3 billion population turn enthusiastic about entrepreneurship and innovation. I believe the key to realizing that is to further liberate our mind, further liberate and develop productivity and further liberate and increase social vitality, and remove all institutional obstacles so that everyone is given more space for entrepreneurship and the blood of innovation could flow unhampered in a society where everyone is full of the spirit of self-development. When reform and innovation fuels the massive wave of entrepreneurship by the people and at the grassroots level on the land of 9.6 million square kilometres, the enormous power of the diligent and resourceful Chinese people will be fully unlocked and the engine driving China’s sustained economic development will constantly regenerate itself and remain powerful.

China’s effort to comprehensively deepen reform is an ongoing process. The government is taking the lead in conducting a “self-targeted revolution”. Just like an arrow shot, there will be no turning back. We will deepen the reform in the administrative approval system. We hope to complete the task of removing and delegating items subject to government approval, originally planned for five years, within a two-year period. This is to unleash the potential of the market and the driving force for development. If streamlining administration and delegating power is like taking a proactive move in the chess game, then introducing new systems is like a “serial blast”. On the one hand, we should provide the list of government powers which defines the scope of what the government should do. Items not found on the list will be deemed as not permissible. Only in this way could we prevent the abuse of government power, reduce rent-seeking and better serve the people. On the other, a negative list should be formulated which defines areas off-limits to businesses. Items not found on the list will be deemed as permissible. Only by so doing could we build open and transparent systematic arrangements with stable expectations and bring about enterprises’ vitality to the fullest extent. Moreover, we should formulate a list of government responsibilities to define how the government should regulate the market. All items on the list should be fulfilled by the government. Only by so doing could we build a market environment that favours honest operations and fair play, energizes businesses and encourages innovation and creativity. The government should enhance ongoing and ex-post oversight and perform its role well both as a referee of the market order and as a guardian of reform and innovation. As a saying goes, only by weeding out the barnyard grass can rice grow properly. Being lenient to law breakers is tantamount to doing wrong to law abiding people. It could even result in “bad money driving out the good”. We will mete out stringent punishment to companies, domestic or foreign, that are involved in producing counterfeit, fake and shoddy products, engaging in fraud and deception, and stealing trade secrets. Protecting intellectual property rights is in fact protecting the kindling of innovation and creativity and the rights and interests of innovators. We will penalize serious IPR infringement to the fullest extent in accordance with the law, including imposing heavy fines, and make law breakers pay insufferable prices.

We will step up science and technology innovation. China is already the world’s second largest economy, but in many sectors it still ranks fairly low and its traditional, extensive way of seeking growth has been proved unsustainable. Readjusting the structure must be driven, more than ever, by science and technology progress, and that requires strategic, structural, and innovative readjustment. We will support and provide guarantee to certain sectors and curb and scale back some others, cultivate and promote new products and new businesses and speed up the development of service, high technology and emerging sectors. At the same time, we will eliminate overcapacity, accelerate the transformation of traditional sectors and build global product and service value chains. We must invest more in human capital and increase the ranks of high-calibre workers. We will improve the technological sophistication, quality and brand awareness of Chinese industries. In particular, we need to step up reforms to remove restrains on innovation by individuals, individual entities and companies, and empower the over 55 million professionals and the over 150 million skilled workers to bring their talents to the full. This way, a new pattern of innovation by the people and innovation by all, supported by the massive physical and mental power of the people and the strength of China’s manufacturing and creative capability, will be fostered, and China’s development will move to a higher level.

China faces uneven development between its urban and rural areas and among its different regions. But the existing disparity, which is quite striking, can entail a huge potential. Promoting a people-centred, new type of urbanization will be in itself the biggest structural readjustment. We will seize opportunities brought by technological advances and global industrial revolution to speed up the development of such schemes as “broadband China” and “smart cities”, leverage the role of cities across the country in galvanizing hinterland development, promote urban-rural integration and a gradient development of different regions and bring about a synchronized progress of industrialization, IT application, urbanization and agricultural modernization. At the same time, we will vigorously develop programs related to people’s wellbeing, promote equal access to basic a public services and enhance household consumption, so that greater internal demand could drive growth to a new high.

The Chinese economy, now heading toward further growth, is also being weighed down by increasing resources and environmental constraints. It is imperative for us to enhance energy conservation and environmental protection. Tackling climate change is not only our binding international obligation as a major responsible country, but also the pressing need for our own development. There is no turning back in China’s commitment to a sound eco-system. We have declared war on pollution and earnestly fulfilled our due international responsibilities. We are studying the action targets on greenhouse gas emissions control, including the peak of CO2 emission, the carbon emission intensity reduction and the increase in the share of non-fossil energy by 2030 and beyond. We have both the resolve and the capability to pursue green, circular and low-carbon development. We will keep focusing on scientific and technological innovation, step up environmental management, boost the development of energy conservation and environment protection sectors, fulfil the task of energy conservation and emissions reduction and work with other countries to tackle global climate change.

We now live in an era defined by deepening economic globalization, with countries increasingly depending on one another in interests and sharing their destinies closely. The world needs China, and China needs the world. China’s endeavour to realize the two centenary goals (namely, to complete the building of a moderately prosperous society in all respects when the Communist Party of China celebrates its centenary in 2021, and to turn China into a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious when the People’s Republic of China celebrates its centenary in 2049) and the great renewal of the Chinese nation will present great development opportunities and a huge market to the world. Instead of “I win, you lose” or a “zero-sum game”, we need win-win or all-win, which ensures mutual benefit. Only in this way could the world prosper and advance forward. China is a resolute in following the path of peaceful development. China is a defender and builder of the existing international system and is dedicated to maintaining an overall environment of peace and stability. We believe that regional conflicts and hotspot issues should be solved peacefully through dialogue. We stand ready to deepen cooperation with our Asian neighbours, properly handle differences as there may be and love with our neighbours in harmony and lasting friendship. We oppose protectionism in all its forms and advocate the building of an open, fair and integrated global market. We support the establishment of both multilateral free trade arrangements and bilateral FTAs, in order to build a high-standard FTA network that is globally oriented. We will continue to pursue a more proactive strategy of opening-up and improve the open economic system. We will focus on stabilizing and actively expanding export. We will move faster to bring greater openness in the service sectors, as well as China’s areas bordering other countries and its vast central and western regions. We will keep our policies on foreign capital stable and improve and standardize the businesses and investment and draw upon and adopt the advanced technologies, mature managerial expertise and fine cultural achievements of other countries. China will always be a major country that is committed to learning from others and will always remain open and inclusive.

As the saying goes, great vision that makes a country prosper is but the result of collective wisdom. Today more than any other time, we need reform and innovation and the sharing of the result of reform and innovation. I hope that all our distinguished participants will speak up your minds, jointly explore ways for reform, innovation and open development, share your views on how to create value and achieve mutual benefit, and do even more to help China’s economic development and world prosperity and progress.

This is a transcript of People’s Republic of China Premier Li Keqiang’s Special Address at the World Economic Forum Annual Meeting of the New Champions 2014