China's New Round of Reform and Economic Future
-Remarks by Consul General Zhao Weiping at Luncheon
Hosted by the Right Place, Inc., Grand Rapids, Michigan
June 24, 2014
President Birgit Klohs,
Distinguished Guests, Ladies and Gentlemen,
I'm delighted and honored to join you at this wonderful luncheon and share with you my thoughts on China's new round of reform and economic future.
First, I wish to thank Birgit and the Right Place for organizing this event. I met with Birgit for the first time at the Chinese Consulate-General in Chicago last July. She gave me a very good briefing on the economy of West Michigan and the important role of the Right Place in promoting the business development here, which impressed me so much and intrigued my strong interest in learning more about this region.
Birgit is indeed an extraordinary advocate for Grand Rapids and West Michigan. Being here today and seeing with my own eyes, I fully agree with her that this is truly the right place for business. Just last month, Grand Rapids was named with its neighboring City of Wyoming as the third best midsize city for jobs in the U.S. by Forbes.com. I wish to congratulate all of you on that.
I also wish to take this opportunity to thank Miller Canfield for sponsoring the luncheon and thank every one of you for your gracious presence.
China is also the right place for business. With rapid economic development in the past three decades, China has become the second largest economy and the largest trading nation in the world. The Chinese people's living standards have been greatly improved, and China has become increasingly important as the world's most populous market.
However, the Chinese government and people are not complacent with their achievements in the past, because they know there are still many challenges the Chinese economy has to deal with.
As a result of high-speed growth for more than thirty years, China's natural resources and environment are under huge pressure. It has become an urgent task to balance economic growth against environmental protection.
Unbalanced economic structure, overcapacity of production in certain industrial sectors, real estate bubbles in some areas of the country, rising local government debts and imperfect financial systems have all become pressing problems hindering healthy economic development. Lack of technological innovation has also put a drag on improving productivity and creating new growth points for the economy.
Under the new circumstances, China realizes that reform continues to be the fundamental solution to all the problems it has confronted. The Chinese government has decided to deepen reform in an all-around manner and announced more than 330 reform items at the end of last year.
The key purpose for economic reform is to rationalize the relationship between the government and the market so as to let the market play the decisive role in the economy and the government play its functions better. To be specific, the economic reform mainly covers the following areas:
First, transforming government functions. Its important goal is to avoid unnecessary intervention of government in economic activities by reducing items which were originally required for government approval.
Second, reforming fiscal and tax systems. China will institute a comprehensive, well-regulated, open and transparent budget system, under which the government can be hold accountable to the public for its revenue and expenditure. Regarding the tax system reform, new steps will be taken such as extending trials on replacing business tax with value-added tax so as to avoid repetitive taxation and reduce the burden on businesses, moving ahead with legislation on a property tax and environmental protection tax, and granting additional tax breaks to micro businesses with low profits.
Third, deepening the reform of financial sector. China will continue to liberalize interest rates by granting financial institutions more power to set their interest rates, and will keep the RMB exchange rate basically stable at an appropriate and balanced level, expand its floating range, and move toward RMB convertibility under capital accounts. China will also steadily promote the establishment of small and medium-sized banks and other financial institutions by private capital, and guide private capital to invest in or hold shares in financial institutions and intermediary financing services.
Fourth, advancing the reform of management model of investment. More economic sectors previously dominated by state-owned enterprises will be open to non-state capital. Regarding foreign investment in China, trials are currently being conducted in the Shanghai Pilot Free Trade Zone on granting pre-establishment national treatment with a negative list to foreign investors.
Fifth, moving ahead with price reforms. Currently, the prices of water, oil, natural gas, electricity, transportation and telecommunication are not fully market-based. China will adopt measures to gradually change the situation.
In addition, China will deepen reform of the income distribution system and strive to narrow the income gap.
It is indeed difficult for people in other countries to understand the complexity of China's domestic circumstances and the arduousness in carrying out the above-mentioned reforms. Especially, the reform will become even more difficult when it has to sacrifice the vested interests of some people.
However, no one should doubt the firm determination of the Chinese leaders to push forward the reform. Here, I just want to make a few quotations of the statements made by the Chinese leaders.
President Xi Jinping once pointed out that the reform has entered a deep water zone and the tasty meat has been eaten up. What's left are the tough bones that are hard to chew, but China will push forward the reform no matter how hard it is.
Premier Li Keqiang made a similar statement by emphasizing that in the course of reform, some people's cheese will be moved, but in order to further release the dividends of reform and bring greater benefits to the people, the government will act without hesitation.
Strong will in carrying out the reform has also been fully reflected in the actions taken by the Chinese government. Timetables have been set up for the implementation of all the major reform measures. The central government has also decided to dispatch supervision teams to relevant government agencies and provinces to ensure smooth and timely progress of the reform.
Under the background of a new round of reform, China is focusing more on improving the quality of the economy rather than seeking a high growth speed. By saying that, it doesn't mean that China will allow its economy to grow too slow. The set goal of the Chinese government is to keep China's economic growth rate within a proper range. The upper limit is to prevent inflation running high while the lower limit is to ensure steady growth and employment. Over the last couple of years, China's annual growth rate has been kept around 7.5%. This kind of growth speed is within the proper range, which the Chinese government is comfortable with.
Latest index has indicated a relatively sound status of the economy. The GDP growth rate for the first quarter of this year was 7.4%, better than market expectation. Inflation is relatively low at around 2.5%. Purchasing Managers Index (PMI), as an important indicator of economic activities, has stayed above the boom-bust line of 50 for twenty consecutive months.
In spite of the above good news, China is fully aware of the fact that the downward pressure on the economy is still huge. Recently, the Chinese government has adopted measures of "micro-stimulus" and "targeted-adjustment" such as lowering the deposit reserve rate for selected banks and increasing infrastructure investment in certain priority areas like high-speed railway construction in the central and western regions. By doing that, China will keep its economy vigorous and prevent it from becoming overheated.
The Chinese government is confident in achieving the target of 7.5% growth this year. Just as Premier Li Keqiang recently reiterated in his speech in UK, there is no possibility for the so-called "hard landing" of the Chinese economy.
China's confidence in its economic future not only comes from the Chinese government's rich experience in economic management and its strong resolve in pushing forward reform, but also from its strong belief in the great potential of its economy.
China is still on its path of industrialization, IT application, urbanization and agricultural modernization for its 1.3 billion people. This has never happened in human history. The potential to be released from this process may exceed many people's expectation.
Unbalanced development between urban and rural areas as well as between different regions in China will also provide broad space for China's further growth.
In addition, China continues to hold many unique advantages in economic development. China has the largest population in the world, and the Chinese people's wealth has been increasing rapidly. China's infrastructure is now one of the best in the world. Labor costs are still relatively low in spite of big increase over the recent years. As the second largest economy, China boasts a complete modern industrial system and well established supply chain, which will help maintain China's position as a major manufacturing power in the world.
Last but not the least, China's efforts in pursuing innovation-driven development will surely pay dividends as time goes by.
Today, many emerging economies are experiencing difficulties such as severe deceleration in economic growth and significant outflow of capital. Although China is also witnessing economic slowdown, there is no comparison between China and other emerging economies. In China's case, its economic slowdown is to a large extent the deliberate policy choice by the Chinese government. We have many reasons to be optimistic about the future of China's economy.
China's mid-and-long term goal is to double its GDP and per capita income by 2020 on the basis of 2010. To achieve that, China will have to register an annual economic growth rate of 7.5%. This is not an easy task, but China will do its best and I believe China can make it.
China's economic growth, just as what we have seen in the past, will not only benefit the Chinese people, but also present huge opportunities for the whole world. In the coming five years, China will import more than US$10 trillion worth of goods, and invest over US$500 billion overseas. Outbound visits by Chinese tourists will exceed 500 million. China will continue to be an important force driving the global economic recovery.
China will, as always, attach great importance to deepening economic cooperation with the U.S. and its individual states. The Chinese Consulate in Chicago will continue to play the role of bridge between China and our consular area. I myself and my colleagues are ready to provide assistance to all of you whenever it is needed.