China's Reform and Economy
--Speech at the ACSI Annual Gala by Consul General Zhao Weiping
Indianapolis, September 16, 2014
Distinguished Guests, Ladies and Gentlemen,
It is my great honor to join you at the Annual Gala of the America China Society of Indiana (the ACSI). I am so glad to be back in the Hoosier State.
I have been to Indiana many times since becoming Chinese Consul General in Chicago 18 months ago, with the first visit in May last year coinciding with the game 4 of the 2013 NBA Eastern Conference finals between the Indiana Pacers and the Miami Heat.
As you may remember, Pacers won that game. Some of my friends here attributed Pacers' victory to my presence at the game. I certainly knew I didn't have that magic power, but I did pray for the Pacers throughout the game that night. Maybe my pray has worked.
The ACSI (America China Society of Indiana) plays a unique role in bridging China-Indiana business. I have found no similar organizations like the ACSI in other states of our consular area. You are lucky to have such a wonderful organization.
China is now an important trading partner for Indiana, and the mutual investment between them has been increasing. Indiana-based multinationals such as Eli Lilly and Cummins have established significant presence in China. Nanshan Aluminum in Lafayette and Vanguard National Trailer in Morton were both good examples of Chinese investment in Indiana in recent years.
By the end of last year, more than 13,000 Chinese students were studying in Indiana. Over 20 Indiana cities have found their sister cities in China. The on-going exhibition of "Take me there: China" at the Children's Museum of Indianapolis represents the cultural aspect of our relationship.
Just like Indiana, China attaches great importance to promoting this mutually beneficial relationship. By working together, both sides will surely achieve more tangible results in bilateral cooperation.
My topic this evening is China's reform and economy. I wish to focus on the following three questions: 1) Will the current slowdown of China's economy lead to a hard landing? 2) Will the Chinese Government achieve its goal of economic reform? 3) Has China changed its attitude towards foreign investors as a result of its recent anti-trust probes against some foreign companies?
For the first question, it is true that China's economy is experiencing a slowdown. Starting from the year 2012, China's annual GDP growth rate dropped to below 8% for the first time since 2000. The slowdown in economic growth was mainly the result of two factors, the sluggish foreign demand and the deliberate policy adjustment by the Chinese government.
To some extent, the slowdown has reflected Chinese government's new thinking of focusing more on improving the quality of economy instead of simply seeking rapid economic growth so as to achieve a long-term sustainable development.
It is impossible for China to sustain an annual growth rate of near 10% as seen in the past 30 years. Too rapid growth will only worsen the serious problems confronting China such as unbalanced economic structure, overcapacity of production in certain industrial sectors, real estate bubbles in some areas of the country, rising local government debts etc.
China's new goal is to keep its 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. That means, China doesn't want its economy to grow too fast or too slow. 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.
Currently, the downward pressure on China's economy is still huge. To deal with this situation, the Chinese government has recently 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 hopes to keep its economy vigorous and prevent it from becoming overheated.
For the first half of this year, China's economy registered a 7.4% growth, and CPI rise was kept at 2.3 percent. Between January and August, the surveyed unemployment rate was kept at around 5% in 31 big and medium-sized cities. As we can see from those statistics, at present, the performance of China's economy is generally stable and healthy as well as in conformity with the goal of the Chinese government.
However, pessimism on China's economy largely originated from the fear for a burst of real estate bubble and a crisis of local government debts. The good news is that the government still enjoys rich policy tools and strong financial capability, and it is determined to correct these challenging problems and prevent them from causing serious damages to the national economy.
As Premier Li Keqiang pointed out recently, China's economy is highly resilient and has much potential and ample space to grow. China has all the confidence, ability and resources to overcome the difficulties and realize the major goals of China's economic and social development.
For the second question, as you may know, the Chinese government announced a very comprehensive and ambitious reform program at the end of last year which involved many areas of the economic, social and political systems with more than 330 specific reform measures to be implemented.
The key purpose for economic reform is to rationalize the relationship between the government and the market so as to avoid unnecessary intervention of government in the economy and let the market play a decisive role.
Major reforms will be carried out in government functions, fiscal and tax systems, the financial sector, the management model of investment as well as the price and income distribution systems etc.
These reforms are not easy, because it will touch the vested interests and require people to change their old mindset and follow new code of conduct.
Take the reform on government functions as an example. Early last year, the Chinese government set the goal of canceling at least one third of the existing 1700 items which require the approval by the Central government in five years. That means relevant government agencies will have to give up some of their powers. By doing that, the government is just like conducting a self-targeted revolution.
As President Xi Jinping pointed out, the reform in China 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.
However, the Chinese leaders are firmly determined to push forward the reform, because they strongly believe that reform continues to the fundamental solution to all the problems in China.
Timetables have been set for the implementation of all the major reform measures. The central government dispatched supervision teams to relevant government agencies and provinces to ensure smooth and timely progress of the reform. Just like an arrow shot, there will be no turning back. As time goes on, we will see more tangible results of the reform.
For the third question, we know that the recent anti-trust probes in China have caused some concerns in the business community of the Western countries.
The first point I want to make is that China's anti-trust law enforcement was not targeting any particular market entities or foreign firms. Enterprises which have been subject to the probes involve domestic and foreign firms, both private and state-owned companies.
Foreign companies represent very low percentage of the total number of enterprises which have been investigated. For example, so far, 335 enterprises and industry associations have been investigated on price monopoly, only 33 of which were foreign companies.
Secondly, according to law, antitrust probes in China are triggered by reports from the public. For example, the probe against the Qualcomm was started because of reports by two US companies and others. There is no such thing as selective law enforcement.
Thirdly, anti-trust probes are only part of the efforts by China in creating market environment for fair competition and better protecting the legitimate rights and interests of consumers. China has also stepped up its fight against forged and fake commodities, infringement upon intellectual property rights, theft of trade secrets and other illegal acts.
Due to the short history of its anti-trust law enforcement, it is necessary for China to learn from the rich experiences of advanced countries and improve its work. We will listen attentively to the opinions or even complaints of foreign governments and companies and welcome their suggestions. In the meantime, we hope that China's anti-trust efforts will not be politicized, since China really doesn't have any political intention in this regard.
China's policy of welcoming foreign investment has not changed. If there were a change, it would be a change for better.
Over the past three decades, foreign-owned enterprises have made great contributions to China's social and economic development and have become an indispensable part of Chinese economy. China will never ignore the role foreign capital has played, let alone exclude foreign-owned enterprises. It would be extremely unwise for any country to turn away foreign investors. This is certainly something China will never do.
On the contrary, China will definitely further open itself to foreign investors. China is currently relaxing market access for foreign investment in the services areas concerning finance, education, culture and medical care. China is also undertaking to carry out the mode of negative lists, streamline approval items and optimize approval procedures to make it easier for foreign businesses to invest in China.
In addition, China has adopted a very serious and positive attitude in its negotiation with the US side on the China-US Bilateral Investment Treaty (BIT). China sincerely hopes that the negotiation can achieve tangible results and conclude at an early date.
In closing, I wish to emphasize that you cannot find a real China in Western media reports. China's economy will not collapse, and China's business environment is improving instead of deteriorating. The ongoing ambitious reforms will give China great elevations in many aspects, which will in turn benefit the world's development and prosperity. It is hoped that the business community of Indiana will seize the opportunity and forge an even closer partnership with China. I wish the trade and economic cooperation between China and Indiana would bear more fruits in the years ahead. Thank you.