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New Trend in China's Economic Growth and New Opportunities in China-US Economic Cooperation
2016/10/24

Dear Friends,

Ladies and Gentlemen:

It is my great pleasure to attend this event to talk about the new trend in China’s economic growth and new opportunities in China-US economic cooperation.

1. the new trend in China's economic growth

At present, the world economy is recovering but faces multiple risks and challenges such as lack of demand, repeated volatility in financial markets, and sluggish international trade and investment. Protectionism is on the rise and multilateral trade arrangements are under impact. Economic globalization faces setbacks. All of these pose great challenges to the growth of every country.

Facing the complicated situation and challenges, China adheres to the vision of innovative, coordinated, green, open and shared development. By taking advantages of huge domestic demand, great development potential, tremendous leeway and rich human resources, China has kept the economy growing smoothly within a reasonable range, continued to promote the transformation and upgrading, and achieved stability in economic operation, employment, revenue and continuous optimization of economic structure.

In the first half of 2016, China's economy grew at 6.7%, ranking top among world leading economies. China contributed over 25% to world economic growth. Industrial upgrading and structural adjustment picked up pace. Financial system remained stable, and total debt level was manageable. The contribution rate of consumption to GDP reached 73.4%. The added value of the tertiary industry accounted for 54.1% of the GDP. The household income increased steadily.

Coming to the third quarter, the Chinese economy not only continues with the good momentum seen in the first half of the year, but also shows some positive changes with bigger contribution by consumption and services to the economic growth and improvement of major indicators which were previously weak or declining. Growth rates of industrial output, corporate performance and investment are all looking up. Downturn in private investment, in particular, has been curbed. Social expectations have improved. Employment has remained basically stable. In the first nine months of this year, 10.67 million urban jobs were created. This means that over 13 million new urban jobs are created for three years in a row.

For the next step, China will pay attention to ensure a certain amount of total demand, accelerate the structural reform of the supply side, focus on improving the quality and efficiency of supply, and solve the problems such as the local and corporate debt and fast rising of real estate prices in some cities.

2. The new direction of China’s economic development

(1) Deepen the overall reforms

China's economic growth has entered a new normal, which is the necessary process for China's economy to evolve to a more advanced level, namely more optimized in labor division and more reasonable in economic structure. Under the new normal, China must rely on reforms to increase new impetus for economic and social development and to maintain medium high speed economic growth.

China will comprehensively promote the rule of law and strengthen protection of property rights for different ownership, so that all market players can participate in the competition on an equal footing. China will provide fairer access to basic public services, reform and improve the income distribution system and mechanism, and let all the people enjoy the benefits of development.

China will continue to innovate its institutional mechanisms to better play its decisive role in the allocation of resources, better play the role of the government, push forward the supply side structural reforms, improve the quality and efficiency of the supply system by optimizing the allocation of factors and adjusting the industrial structure, stimulate the market's vitality, and promote efficient and coordinated development.

China will continue to innovate macro-control methods, rein in the power of bureaucrats, and optimize public services. We will intensify the reform of the investment system, marketize the competitive business of the monopoly industries as soon as possible, speed up the orderly opening up of the service industry, and relax the access restriction of the manufacturing industry.

China will continue to strengthen the protection of intellectual property rights and create a favorable environment for trade and investment.

China will develop a multi-level capital market, increase the proportion of direct financing, promote mergers and acquisitions, gradually reduce the non-financial enterprises’ leverage rate and diffuse risks.

(2) Continue to expand opening-up

China has made great achievements in its past development, benefiting from opening-up to the outside world. China will unswervingly pursue the opening-up strategy of mutual benefits and win-win results, and constantly create a more comprehensive, more in-depth and more diversified pattern of opening to the outside world. China needs to interact with the world and open to the outside world in depth, so as to realize its own development and bring more development opportunities to the world at the same time.

China will ease the investment restrictions for foreign investors, improve the degree of facilitation, promote fair and open competition, and strive to create an enabling business environment. At the same time, China will speed up in signing free trade agreements and investment agreements with the relevant countries, and promote domestic high standards of free trade zone. In order to carry out a market-oriented currency exchange rate reform and gradually open up the domestic capital market, China will continue to promote the

Industry.

China will continue to support the multilateral trade system, promote trade and investment liberalization and facilitation, promote the process of economic globalization, promote rational division of labor and its efficiency, expand market size so to give consumers a variety of choices, and enhance people's well-being. In the next five years, China’s total import will reach US$8 trillion, total outbound investment will reach US$720 billion and the Chinese people will make over 600 million outbound visits. All this will bring huge business opportunities to companies of all countries, China will focus on the Belt and Road initiative to promote international capacity cooperation and promote mutually beneficial cooperation and common development with more opening-up and win-win initiatives. A series of key projects and economic corridors under the Silk Road Economic Belt initiative have made great headway. The 21st Century Maritime Silk Road construction is proceeding at the same time. The Asia Infrastructure Investment Bank has begun to play an active role in regional infrastructure development.

(3) Focus on industrial upgrading

China's economic restructuring and upgrading enters a critical stage. China will resolutely transfer the capital, human and other productive resources which are occupied by the high energy consumption, high pollution and backward industries into new technologies and new economic fields.

From 2016 onwards, China will use 5 years to reduce crude steel production capacity of 100 million to 150 million tons, use 3 to 5 years to reduce coal production capacity of 500 million tons and restructure production capacity of about 500 million tons.

As China's urbanization rate increases, consumption and industries upgrade, the demand for life services and production services will rise correspondingly. China uses leverage tools such as taxation to foster the growth of production and life service sectors, promote comprehensive pilot reforms of service industry, and as a result, a service-led economic pattern has taken shape. Based on the realities, China will give priority to the development of production services, expand market access in the field of production services, create a level playing field, eliminate discriminatory barriers to social capital and encourage social capital to develop production services in various ways.

(4) Strengthen scientific and technological innovation

China has long been relying on resources, capital, labor and other factors to support economic growth. This way was unsustainable, and China's development is facing the tasks of discovering alternative drivers, changing the economic model and adjusting the structure. Building an innovation-oriented country is the only way for China's development.

China is implementing an innovation-driven development strategy, which defines innovation as the driving force and strives to achieve growth in quality rather than quantity. China will promote all-round and multi-level innovation covering a wide range of areas in terms of the development conception, institutional mechanism and business models, and realize a fundamental change to drive development with endogenous motivation. China strives to make breakthroughs in major projects and in key directions, and actively take the lead in the implementation of major international scientific programs and large scientific projects. China will focus on solving the scientific and technological problems which are critical for economic and industrial development. China will promote the transfer of scientific and technological achievements into products to meet the need of structure adjustment, the construction of modern industrial system, and the development of strategic emerging industries and modern service industry, and move industries and products up to the high-end of the industrial chain.

At present, China's new technologies, new industries and new format are accelerating. Many traditional industries are back to life. The new economic momentum is shown in the rise of economic increment, the activation of the stock, and the promotion of the quality. The market and the society are highly creative.

(5) implement the green development

China will unswervingly implement the strategy of sustainable development, adhere to the green, low-carbon and circular development, and commit to the fundamental national policy of conserving resources and protecting the environment. China will unswervingly promote green development, seeking better quality and efficiency. To protect the environment is to protect productivity, and to improve the environment is to boost productivity. China is promoting green development, which is also the viable way to address climate change and overcapacity. In the next five years, China's water consumption, energy consumption, carbon dioxide emissions per unit of GDP will be respectively decreased by 23%, 15%, and 18%. We want to build a China that has blue sky, green land and clear water, so that people in the livable environment can enjoy life, and truly feel the ecological benefits brought by economic development.

(6) Promote regional coordinated development

Coordinated regional development will support the long-term sustained and healthy economic development in China. China will continue to promote the development of the western region, revitalize the northeast old industrial base, and create economic leeway. China will take the unique advantages of the golden waterway to build the Yangtze River Economic Zone, which will promote economic development from east to west gradually, pursue a new driving force covering more than one-fifth of the territory and involving nearly 600 million people, lift poverty-stricken areas out of poverty, and reduce regional discrepancy. It will also optimize the economic structure, reinforce the Silk Road economic zone strategically, create a new economic supporting zone and forge a new open platform for cooperation with global influences.

China will facilitate the eastern region to achieve a higher level of open development and leverage the role of the eastern region as a stimulator and stabilizer to stimulate economic growth. the Four key strategies," namely the integration of Beijing-Tianjin-Hebei, the Silk Road Economic Belt, the 21st century Maritime Silk Road and the Yangtze River Economic Zone, are forging ahead.

To promote the coordinated development of regions, China will firstly encourage coastal industries to move to less developed areas to enhance self-development capacity of these areas through the implementation of the national overall strategy of regional coordinated development and development priority zones. Secondly China will remove the institutional barriers to cross-regional migration and promote the transfer of population from underdeveloped areas to areas with greater economic and human capacity.

(7) Improve people's living standards

China will meet the people’s aspirations for a better life, raise their living standards and the quality of their lives, improve the public services system and enlarge the middle-income group. In particular, we will provide stronger and more targeted support to those living in difficulty, so that over 57 million poor rural population under the current poverty line will all be lifted out of poverty and poverty will be eradicated in all poor counties by 2020.

With more attention paid to equity and fairness, we will make the pie bigger and ensure that everyone gets a fair share of it. We will resolve the most pressing problems affecting the immediate interests of the people. China will vigorously promote the construction of public services and other weak areas to achieve national development and improvement of people’s livelihood at the same time. People will have more sense of security. They will have means to live when they are old, have someone to attend to them when they are ill, and have some place to live in when they need. They will be more satisfied with the environment and food safety. The quality of their life will be improved.

3. New opportunities for China-US cooperation

The new direction and new focus in China’s economic development mentioned above not only create a new impetus for China’s economic development, but also bring new opportunities, explore a new way and open up brighter prospects for bilateral economic cooperation between China and the United States. We think China and the US should strengthen economic cooperation on the following aspects.

(1) Increase cooperation in advanced manufacturing

China’s economic structure is transforming and upgrading. High-end CNC machine tools and robots, aerospace equipment, marine engineering equipment and high-tech ships, advanced rail transportation equipment, energy-saving and new energy vehicles, power equipment, agricultural equipment, new materials, bio pharmaceutical and high performance medical device industries are listed as the ten strategic emerging industries in China.

The "intelligent manufacturing" which is the in-depth integration of the Internet and industry is the main direction defined in the “China manufacturing 2025”. It will seize the opportunity for change in the manufacturing industry in the new round of industrial revolution. It will help to build a boundless sharing economy between upstream and downstream partners in the manufacturing industry.

The manufacturing industry is well developed in the United States, especially in the Midwest. Therefore the US side can give full play to their own advantages, strengthen cooperation with Chinese enterprises and explore China's vast market in the key industries listed above.

(2) Increase cooperation in energy conservation and environmental protection

Green development is one of the five major development principles put forward by China. It is the basic state policy of China to deal with climate change and achieve sustainable development.

In the future, China will pay more attention to the proportion of the ecological function in per unit of economic output. The green concept will become a new bright spot in China’s economy. Green industry will has great investment potential and huge room for development in China. According to the statistics from China's National Development and Reform Commission, China's energy saving and environmental protection industry grew at a rate of 15% to 20% during the 12th Five-Year Plan period (2011-2015). By the end of 2015, The output value reached 670 billion USD in China's energy saving and environmental protection industry. A vast market with 1.5 trillion annual output value is being formed in China’s energy saving and environmental protection industry.

Many enterprises in the United States have advanced technology in energy saving and environmental protection and accumulated rich experience. In addition, scientific research achievement, new technologies and new methods in the energy saving and environmental protection area are surging in the United States We hope US companies can seize the opportunity to vigorously carry out green cooperation with China. It will not only bring great economic returns but also contribute to the fight against global climate change.

(3) Increase medical and health cooperation

With the development of economy and the increase of aging population, the Chinese government is paying more attention to universal health care and senior citizen caring issues. The annual health expenditure in China is about 5.2 trillion USD. A new service industry represented by medical services and senior citizen caring is booming in China.

Critical diseases insurance in China continues to improve in terms of the coverage and the degree of protection, making the treatment more affordable for the patients. In terms of health care reform, the implementation of grading treatment system will promote the development of primary medical institutions in scale and profitability. It will also guide medical resources to flow to the grassroots medical institutions. We emphasize the combination of providing caring and medical support for senior citizens. Some agencies are studying how to monitor and control chronic diseases such as cardiovascular disease and diabetes of the elderly through Internet in order to provide timely and effective treatment, reduce costs and lower the mortality rate.

All of these will bring huge business opportunities for US companies. American enterprises have clear advantages in R & D and manufacturing of medical equipment, hospital establishment and management, as well as monitoring and treatment of patients in communities. We hope American and Chinese enterprises can expand cooperation in the medical and health sector in order to achieve win-win results.

(4) Strengthen cooperation in production capacity building in third country

China has put forward the Belt and Road initiative to promote global economic development, especially economic development in the developing countries, and achieve inclusive growth. China is helping developing countries to improve infrastructure, realize interconnectivity, and set up industrial systems based on their own unique advantages in order to integrate into the global industrial value chain and share the benefits of global economic development.

China is using its industrial manufacturing system, cost-effective equipment building capacity, strong construction ability and outbound investment strength to cooperate with these developing countries to boost their production capacity. This kind of cooperation will result in mutual benefits and win-win results. The American enterprises should fully avail its own advantages and actively participate in this process so as to boost their sales and contribute to the growth of developing countries.

(5) Promote the growth of E-commerce

A significant feature in current China's economy is the vigorous growth of E-commerce. In 2014, the transactions in China's e-commerce market amounted to 2 trillion USD, a year-on-year increase of 31.4%. B2B e-commerce market transactions amounted to 1.5 trillion USD, an increase of 21.9%. Online retail market transactions amounted to nearly 420 billion USD, an increase of 49.7%. Online shopping accounted for 23% of the E-commerce, reaching to the 10% of total social retail sales for the first time. In 2015, the total number of Chinese online shoppers reached 410 million, and online consumption has accounted for 15% of total private consumption. In 2020, online consumption will grow at an annual rate of 21%, accounting for 24% of total private consumption. China has exceeded the United States to become the world's largest online retail market. Online shopping has also become an important force to drive the growth of Chinese E-commerce market. China currently has hundreds of millions of smart mobile phone users, and the potential market size is larger than any other economy in the world.

Facing the new situation of the rapid growth of E-commerce, Chinese and American companies, especially small and medium-sized enterprises of both sides need to seize the new opportunities brought by e-commerce, and explore each other's market. In the past, small and medium-sized enterprises of various countries failed to sell their products to the international market due to lack of first-hand knowledge of the foreign market, poor financial situation, and lack of international trade channels and talents. The emergence of E-commerce will enable enterprises to explore foreign markets and customers with low cost and high efficiency. It will also open up a broad market for the small and medium-sized enterprises and greatly increase the opportunities for cooperation. We hope Chinese and American enterprises will actively explore how to establish facilities and channels in goods transportation, warehousing, customs clearance and customer service, make full use of E-commerce to seek cooperation opportunities, further participate in the global value chain, and realize further integration and cooperation of our two economies.

(6)Promote scientific and technological innovation cooperation

In order to cultivate new industries as the leading force for economic growth, adjust economic structure, transform production mode and increase the potentials for long-term economic growth, the Chinese government and enterprises at various levels are carrying out technological innovation and commercializing the scientific and technological achievements. At present, there is a big gap between China and the United States concerning the quantity and quality of scientific research achievements, mechanism of commercialize scientific research achievements, and the culture and environment of innovation and entrepreneurship. This provides vast room for China-US innovation cooperation.

There are several ways to engage China-US cooperation in science and technology innovation. Firstly, We can take advantage of US advanced technology and China's huge market to promote new technology and new products which have great potential in Chinese market. Secondly, we can encourage China's venture capital and private equity fund to invest in science and technology innovation projects in the United States. Thirdly, we can make full use of intellectual resources both in China and the United States to engage in joint research and development. These cooperation will bring huge economic benefits and social benefits to our two countries as well as the whole world. We hope that the relevant parties in China and the United States will actively work together in order to establish an information exchange mechanism for scientific and technological innovation cooperation, explore more cooperation opportunities and promote scientific and technological innovation cooperation between our two countries.

(7)Promote China's investment in the United States

At present, China's economy has been deeply integrated into the process of economic globalization. More and more Chinese enterprises are parts of the global supply chain. In recent years, the Chinese government has taken more measures in reform and opening up. Chinese enterprises are more active in making investment in the United States so that they can get close to their customers, get familiar with the target market, and learn management expertise.

These investments are not only rational commercial choices made by Chinese enterprises but also favorable to the US economy. They not only create jobs and tax revenues here in the US, but also help American enterprises expand the huge Chinese market. We would like to work with our US counterparts, give full play to the mechanism of joint working group on trade and investment between China provinces and US states, set up a platform for US law firms, accounting firms, investment banks, chambers of Commerce and other intermediaries in order to bring more Chinese investments into the United States.

Thank you for your attention.

(The speech by Consul General Hong Lei at the Seminar "Capitalizing on the Transition of Economy" hosted by United States of America-China Chamber of Commerce)

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