|Speech by Consul General Hong Lei on the Emerging Market Conference of 2017at Kellogg School of Management, Northwestern University|
Ladies and Gentlemen,
It's a great pleasure to be invited to attend this year’s Emerging Market Conference of Kellogg School to share with you our insights regarding the new path of global development.
I. The current Chinese economic development
The global economy has struggled with the recession since financial crisis for years, and has not yet found a new strong growth path, adding more uncertainty to the whole world. Each emerging market performs in a different way in face of such uncertainty. In this context, through the reform with keen determination, China enjoys a vigorous economic development currently, and continuously provides other countries with mutually beneficial and win-win opportunities, thus injecting tremendous momentum in stimulating world economic recovery.
In 2016, the Chinese economy remained a steady and healthy development. With an increasingly accelerated pace of innovation, not only people’s livelihood is steadily promoted, but both the quality and efficiency of development is constantly enhanced. Moreover, the economic structure is constantly optimized and upgraded. Meanwhile, the new industries, new business and new models represented by the “Internet Plus" action are becoming the new decisive engine for Chinese economic growth. In 2016, China achieved a GDP growth rate of 6.7%, obtaining an economy aggregate of over $10 trillion. The contribution of consumption to the economy reached 71%.
In 2016, China's opening-up environment has been ameliorated continuously. Foreign direct investment in China (FDI) rose by 2.3% to $139 billion, turning China into the third largest FDI recipient country, merely the second to the United States at $385 billion and the United Kingdom at $179 billion. In addition, the foreign investment in China has been optimized. More and more foreign capitals have been flowing into the high value-added service industries and the high-tech manufacturing industries, facilitating the rapid industrialization and global spread of multinational companies' innovative technology.
In 2016, China’s outbound investment has maintained a rapid growth and set a record. Fighting against the downturn of world economy, China, as the world's second largest foreign investor, has made a non-financial outbound investment of $170.1 billion cumulatively in 2016. With a year-to-year growth of 44.1%, the investment covers 164 countries and regions. The annual turnover of foreign contracted projects has increased by 3.5% to $159.42 billion.
In 2016, China has accomplished the task of cutting excessive industrial capacity ahead of schedule, playing its important role in global economy re-balancing. As the world's largest steel producer and consumer, China is the pioneer to tackle industrial overcapacity with the most specific effort, the most resolute implementation and the most significant effects. In 2016, with the annual coal production falling 9.4% over the previous year and annual steel production capacity reducing by 45 million tons, China's coal and steel industry successfully fulfilled the annual task of cutting excessive capacity. The accomplishment of China in this regard has offered helpful experience to other countries in terms of easing the global imbalance between supply and demand and revitalizing the traditional industries.
In 2016, China's domestic demand growth made a significant contribution to global trade. In 2016, despite the sluggish global economic growth, China still maintained a robust market demand. In the field of industrial products, China's iron ore, copper and crude oil imports rose by 9.2%, 30.5% and 14.0% respectively, and imports of integrated circuits increased by 9.3%. From January to November, imports of pharmaceuticals and auto parts had an increase of 9.1% and 8.3%. From January to October, China's imports of services grew by 23.7%. China's substantial growth in imports of international commodities and major industrial products has effectively promoted the international supply and demand, not only boosting the economic growths of resources and energy exporting countries, but also exerting a positive influence on the economic recoveries of developed countries. As for the consumer goods, China also enjoys a tremendous increase in the imports. In 2016, China's high-income population accounted for 20% of the urban population with a total number of more than 150 million. This group’s per capita disposable income has reached about $10,000, and its total spending power is equivalent to that of several medium-level countries combined.
In the first quarter of 2017, China's economy has maintained its stable and growing momentum. Therefore, the economic growth has begun to pick up. According to the China's National Bureau of Statistics (NBS), China's GDP in the first quarter reached $2.62 trillion, up by 6.9% year on year, and increased by 0.2 percentage points over the same period last year and 0.1 percentage points from the fourth quarter of 2016. Meanwhile, the employment status has been strengthened, resident’s income has been improved, and consumer demand has flourished. In the first quarter, China's urban employed population has increased by 334 million with 16 million more than that of the same period of last year. Residents' disposable income has increased by 7.0%, which is in line with the economic growth. Employment expansion and income promotion have guaranteed and laid a solid foundation for consumption expansion. The total retail sales of social consumer goods has increased by 10.7% in the first quarter of this year, and the contribution of consumption to the economic growth has reached 77.2%, up 2.2 percentage points over the same period of last year. In the first quarter, the highlights of consumption growth are as follows: the service consumption growth has accelerated and the proportion of service consumption has increased among the overall consumption; the consumption upgrading has accelerated; the entrepreneurship and innovation nationwide are flourishing, which gives birth to various new consumption patterns and formats.
China's economy is expected to maintain its current development level in 2017, and the quality of economic growth is to be further upgraded.
II. China’ s contribution to world economic development
I would like to emphasize that the Chinese economy is not only one with a vast volume, but also with a more steady and high growth rate. Enormous volume, rapid growth and tremendous contribution have become Chinese economy's outstanding "label" in the global economy. China is not only a beneficiary of economic globalization, but also a contributor.
First, China provides a vigorous engine for global economic growth.
According to the International Monetary Fund (IMF), China contributed 1.2 percentage points to the global economic growth in 2016, while the United States contributed 0.3 percentage points and Europe 0.2 percentage points respectively. Based on the data, China's contribution to the global economic growth has surpassed 30%. Apart from the single figures, China's contribution to the global economic growth is mainly reflected in the following aspects:
Firstly, China's economic growth has benefited Chinese people that accounts for about a quarter of the world's population. Over the past few decades, China's economy has lifted 700 million people out of poverty and facilitated a rapid rise of the middle class. The Chinese are earning higher incomes, and their living standards have been significantly improved. In 2016, the per capita disposable income of the national population increased by 6.3%. Currently, China is home to almost 300 million people with middle-class incomes, and this figure is likely to reach nearly 500 million in the coming 10-15 years.
Secondly, China's economic growth has boosted other countries' development through global trade. A smart businessman favors two types of person: one is the supplier who can provide them with inexpensive goods, and the other is the customer who can bring orders. For many economies in the world, China has been playing these two positive roles at the same time via global trade over the past few decades.
On the one hand, China has been providing inexpensive products, making a vital contribution to reducing the global production costs, thus promoting technological progress, and improving global livelihood. In recent decade, China's manufacturing industry has made a considerable progress, especially China's high-speed railway, construction equipment and telecommunications industries are now leading the world. These products have gained wide popularity in many countries. A typical example is China's railway manufacturer CRRC. Since entering the United States in 2014, CRRC has successively received 1359 subway and commuter bus orders from the four cities of Boston, Chicago, Los Angeles, and Philadelphia. CRRC not only provides vehicle products for the United States market, but also makes a comprehensive output in technology and capital and so on. Moreover, it expands the market for CRRC and realizes the Sino-US cooperation and sharing in the field of rail-transportation.
On the other hand, China has been providing a broad market for global enterprises.
As for the industrial products, China's industrial upgrading and innovation development requires large amounts of imported machinery, electrical and high-tech products, which then provides a vast market for the high-end products from those developed countries. Meanwhile, China's strong demands for primary products have also driven the economic development of relevant developing countries. To take the bulk commodities and major industrial products as an example, China's imports of these products have increased dramatically since last year, effectively optimizing their international supply and demand. China has not only boosted the economic development of many developing countries which are highly dependent on resource and energy exports, but also exerted a positive influence on the gradual economic recovery of the developed economies.
In terms of the consumer goods, despite the fact that the weak global economy has caused a sluggish external demand, the strong and escalating domestic demand has not only stabilized the Chinese economy, but also brought business into other economies. Relevant data demonstrates that, in the first three quarters of 2016, the imported consumer goods in China amounted to $99.7 billion with an increase of 11.1% over the same period in 2015. Among which, the import of consumer goods from New Zealand, Japan, the European Union and the United States increased by 15.8%, 12.4%, 10.8% and 8.8% respectively.
Thirdly, in the case of the appreciation of the US dollar and the aggravating pressure of capital outflows in developing countries, China's increasing outward investment has become a crucial factor in stabilizing the global financial markets. Boasting a complete industrial system, China is the only country that covers all the 39 large industrial categories, 191 medium categories, and 525 sub-categories of the United Nations Industrial Classification. Therefore, Chinese investment abroad is such a diverse one that almost all economic sectors are involved, and the investment is especially strong in infrastructure construction and manufacturing. With the US dollar appreciated, and the greater pressure of capital outflow in developing countries, the increased Chinese investment abroad has provided a substantial support for relevant countries to optimize the industrial system and infrastructure facilities, to elevate people's livelihood and to overcome the economic crisis. It not only contributes to stabilizing the global financial market and the economic performance, but also injecting new vitality into the global cross-border investment, thus further stimulating the development of emerging economies in the Asia-Pacific.
Second, China is willing to share its own distinctive ideas and proposals for the global development.
What I would like to point out is that China has not only contributed a powerful impetus with its own actions to the global economic recovery, but also put forward its own distinctive ideas and proposals for the global development. The five development concepts, namely innovation, coordination, green development, opening-up and sharing are leading the current economic and social development of China. The five development concepts were proposed by Chinese President Xi Jinping in 2015 and officially identified as the road map to lead China’s economic and social development in the“13th Five-Year Plan”, from 2016 to 2020, which aims to build a moderately prosperous society in all respects by 2020. In this regard, the five development concepts are the perfect approaches to achieve the objective above. The five development concepts are proposed on the basis of the successful experience of China’s reform and opening-up to the world, which at the same time contain China’s original ideas and wisdom. In the contemporary world, China is the first country promise its people that it will implement the idea of sharing development, and promise the world that it will perceive “two-way opening” and “win-win cooperation” as the new principle in handling relations between countries. What is more, China is the first developing country that actively advocates and effectively implements the green development strategy. China is not only one of the most successful countries in the development process, but also a country that advocates the new idea of innovative development. This will not only define China’s development path, but also lend good practices to other countries.
Next, I will elaborate on the five development concepts:
The first concept is “innovation”. This concept aims to implement the innovation-driven development strategy.
China will make innovations from seven aspects, to be more specific, the new impetus, new space, innovation-driven development strategy, agriculture, new industrial system, new institution and macro-economic regulation. Among them, I will lay an emphasis on the specific meanings of the new impetus and new space.
The new impetus indicates the respective role of the so-called three carriages, namely, consumption, investment and export, which serves as the foundation, key and facilitator of economy respectively. Among them, the consumption mode will shift from the traditional physical consumption to the service-oriented consumption, and the consumption direction is positioned as an intelligent, green, healthy and safe one. For the trade, the strategy of “quality imports and quality exports” will be carried out with a view in promoting the cooperation with the international production capacity and equipment manufacturing in the capital-intensive or technology-intensive industries, thus elevating the status of China’s industries in the global value chain.
The new space signifies the expansion of development space in industries, internet, infrastructure and oceans. Among them, the expansion of Internet economic space has been highlighted. First of all, we will put the “Internet+” action plan into force, and develop technology of the Internet of Things and its application. The typical model of the Internet economy, for instance, the“sharing economy”, has also been definitely established as the focus of the network economic development, so as to promote the integrated development of the Internet and the economic society. In the meantime, the “National Big Data Strategy” was listed in the 13th Five-Year Plan for the first time, aiming to facilitate the opening and sharing of data resources.
Up to now, in China, the major technological innovation projects aimed to be completed by 2030 have been initiated, including supporting Beijing and Shanghai to build the science and technology innovation centers with a global influence, as well as the establishment of new six independent national innovation demonstration areas. The number of effective domestic patents for invention has exceeded 1 million, and the value of technology transactions has surpassed more than 1 trillion yuan( 145 billion US dollars in equivalent). We will encourage the people to open up their own businesses and to make innovations as much as possible. The year of 2016 witnessed the increasing number of newly registered enterprises with a rate of 24.5% and an average number of 15,000 new enterprises every day, which has injected fresh blood into China’s economic development.
The second concept is “coordination”. This concept aims to promote the coordinated development between urban and rural areas and the coordinated development between economy and society. So far, China has remained the largest developing country in the world. With a population of 1.3 billion, China rises to the challenge of low living standard and wide gap between the urban and rural development. Under the guidance of the coordination concept, we are supposed to propel the new industrialization, IT application, urbanization, and agricultural modernization, and simultaneously pay attention to the enhancement of the national soft power while strengthening the hard power, so as to constantly achieve the integrated development.
Specifically, we will build longitudinal and lateral economic belts along the oceans, rivers and railways focusing on the Belt and Road construction, coordinated development of Beijing-Tianjin-Hebei Region, as well as the construction of the Yangtze River economic belt; moreover, we will optimize the development of the three urban agglomerations, including the Beijing-Tianjin-Hebei Region, Yangtze River Delta and Pearl River Delta, and strive to forge urban agglomerations in the northeast, Central China, middle reaches of Yangtze River, Chengdu-Chongqing Region and Guanzhong Plain.
The third concept is the “green development”. This concept adheres to the basic national policy of resources conservation and the environmental protection. We will stick to the sustainable development and the civilized development path of production and development, pursue a well-off life and healthy ecological environment, and accelerate the construction of a resource-saving and environment-friendly society, thus creating the new pattern of modernization that realizes the harmony between the human and nature, promoting the construction of a beautiful China, as well as making new contributions to the global ecological security. China will continue to persist in the green low-carbon cyclic development and take the initiative to deal with the issues of climate change and excess capacity. By 2020, China will further reduce 100 or 150 million tons of crude steel production capacity, cut down about 500 million tons of coal production capacity, and slash about 500 million tons of coal production capacity through corporate restructuring, and achieve the unit GDP goals with decreases of 23%, 15% and 18% respectively in terms of the water consumption, energy consumption and carbon dioxide emission to enable the people to enjoy the ecological benefits of economic development.
The fourth concept is “sharing”. This concept is to enhance the well-being of people. China will proceed to enlarge investment in people’s livelihood, and continuously improve people’s living quality, the education, health care, social insurance and other public service systems, and increase the proportion of middle-income earners. At the same time, the justice and equity is another significant issue, which suggests we must appropriately share the benefits gained from the development, and start with issues that are in the immediate interests and are of the top concern of people, so that the fruits of economic development and reform and opening–up can be equally shared.
By 2020, China will realize a moderately prosperous society in all respects, suggesting that China must achieve the goal of shaking off poverty for all the poverty-stricken population in rural areas according to the current standard by 2020. It is a formidable task. And China mainly employs the strategy of precision poverty alleviation and elimination in this process.
The fifth concept is “opening”. This concept is to pursue a mutually beneficial and win-win strategy, which is China’s strategic choice. The reform and opening-up strategy has been carried out, therefore, once the door is opened, it will not be closed. We must keep up with the trend of in-depth integration of China’s economy into the world economy, and adhere to the coordination of internal and external demand, balance of imports and exports, implementation of both the“bring in” and “go global” strategy, as well as simultaneously attract the investment, technology and talents. In addition, a higher level of open economy must be developed, and then people can actively participate in the global economic governance and the supply of public goods, thus building an extensive community of interests.
Specifically, it includes the following aspects:
We will gradually realize the capital account convertibility of RMB and facilitate RMB to become a convertible, freely used currency. We need to change the way of foreign exchange management and utilization, and change them from the positive list to a negative list. We will relax the exchange restrictions on foreign investment, the requirements of foreign exchange management for enterprises and individuals, and the restrictions on the overseas capital operation of multinational corporations. We must strengthen the monitoring on the balance of payments, and maintain the balance of payments. We will promote the two-way opening of the capital market and gradually remove the limitation of investment within and outside China.
We will implement a positive import policy; China will import more goods from other countries in the future. China will expand the imports of advanced technology, key equipment and spare parts. China will support financial leasing and financial leasing enterprises to carry out import equipment financing leasing business under the premise of risk control and commercial sustainable development. China will increase the imports of general consumer goods, including fruits, agricultural products and cars.
We will actively build the financial services platform for the global production capacity and equipment manufacturing cooperation, strengthen the cooperation with international financial institutions, participate in the establishment of the Asian Infrastructure Investment Bank and BRICS Development Bank, take advantage of the Silk Road Fund, and attract international funds to build open, diversified and win-win financial cooperation platforms.
We will continue to welcome foreign companies to make investments in China. China is further relaxing the admission restrictions on foreign investments to simplify the procedures and promote fair and open competition, so as to create a favorable business environment. At the same time, China will push forward the implementation of free trade agreements and investment agreements with relevant countries, and promote the construction of domestic high standard free trade pilot areas. So far, seven new free trade zones have been set up on the basis of reform and innovation and achievements have been gained in Shanghai Free Trade Zone and other free trade zones.
III. China’s development provides global economy with new opportunity
Under the guidance of the five major development ideas, by 2020, China will build a well-off society in an all-round way, and a large and mature market will emerge and bring unprecedented opportunities for the world. China's President Xi Jinping stressed when delivering a keynote speech in Davos that in the following five years, it was estimated that China would import $ 8 trillion commodities, attract $ 600-billion foreign investment and have $ 750-billion total investment abroad, and outbound travelers would reach 700 million. That will provide the world with a broader market, more abundant capital, richer products, and more valuable opportunities for cooperation. For the industrial and commercial sectors of various countries, China's development remains to be a great opportunity, which is mainly reflected in the following aspects:
Firstly, the new urbanization and economic restructure will improve residents' income and the increasing and diversified demand contribute a lot to relevant countries' exports to China. Take the U.S. as an example, products and services imported from the U. S, ranging from high quality agricultural products to intelligent high-tech products, are all sought after by Chinese consumers. During the past decade, the annual growth rate of US exports to China reaches 11%, making China the most rapidly growing export market besides North America for the U.S. China is America's biggest export market in aircraft, soybean and agriculture industries, and the second biggest in automobile and integrated circuit industries. 26% of the Boeing aircraft, 56% of the the US soybeans, 16% of the US automobiles, 15% of the US integrated circuit are exported to China. In a word, there is huge potential of growth for the US exports to China.
On the one hand, cross-border e-commerce will help to accelerate the growth of US exports to China. In recent years, China’s cross-border e-commerce has been growing rapidly. According to Ministry of Commerce in China, the e-commerce user penetration is over 10%, and there are over 10,000 cross-border e-commerce companies and over 300,000 companies that are part of the broader cross-border e-commerce ecosystem. In 2015 and 2016, Chinese cross-border e-commerce market reached 4.8 trillion RMB and 6 trillion RMB respectively, representing annual growths of 28% and 25% respectively. Cross-border e-commerce accounted for 19.5% and 20% of total Chinese imports in 2015 and 2016. It is estimated that by 2020, cross-border e-commerce market will reach 12 trillion RMB, representing 37.6% of Chinese imports. Since 2014, the Chinese government has issued a number of policies that promote the cross-border e-commerce sector, which cover tax optimization, streamlining of importing procedures, and settlements.Currently, the Chinese government and Chinese enterprises are actively working on laying the ground work of setting up a China-US cross-border e-commerce platform, which would encourage US companies to further develop their e-commerce imports to China.I am pleased to learn that in June this year, China's largest e-commerce platform Alibaba Group will hold a e-commerce summit in Detroit to help the US small and medium enterprises to further increase exports to China. By then, the United States exports to China will be on a new level.
On the other hand, US exports of service to China have huge potential for growth. According to the report on US Exports to China (2006-2015), released by the US-China Business Council in 2016, US services exports to China increased by more than 300%. Service exports to the rest of the world increased only by 91%. Take tourism as an example, in 2015, 2.7 million Chinese travelers visited the US;there are 13,000 visitors flying across the Pacific between China and US every day; and every 17 minutes, an intercontinental flight would take off between the two countries. Chinese visitors spend 8,000 USD on average and collectively they bring over 21 billion USD of revenue to the US tourism industry. In the coming five years, there will be 700 million Chinese visitors traveling overseas, and this presents a great opportunity for US tourism industry. Let’s move over to the education sector. According to International Education Association, Chinese students have been the largest foreign students group among all international students in the US for seven years in a row. In 2015 alone, there were 330,000 Chinese students coming to the US to pursue education, which provides great economical value to the US education industry. As I have mentioned, the Chinese consumers are shifting from goods-oriented to services-oriented consumption. In the meantime, to further upgrade our industrial sectors, a great deal of services demand must be fulfilled. As the most developed country in the modern services, US is well positioned to capitalize on that trend.
Secondly, China has a large market and friendly foreign investment policies, and foreign enterprises can anticipate abundant commercial interests. By the end of 2016, there were 670 thousand US investment projects with an aggregate investment of 79.8 billion US dollars in total in China, which account for 7.8% of approved foreign companies in China and 4.5% of foreign investment in actual use in China. As I mentioned previously, China is now proactively implementing the strategy of “Made in China 2025”, which applies equally to domestic and foreign companies, and presents attractive opportunities for American companies to play an important role. Under the strategy, foreign companies, including American companies, are encouraged to invest in advanced manufacturing, smart manufacturing, green manufacturing, and upgrading traditional industries. China welcomes foreign R&D centers and foreign companies, including American companies to cooperate with domestic companies and research institutes. In addition, American companies are welcome to invest in China’s service industry. Since 2013, the Chinese government has announced a series of plans that encourage the opening up of China’s service industry, including finance, education, culture, health-care, nursery and senior-care, architectural design, accounting, auditing, logistics and e-commerce, among others.
Thirdly, expansion of China’s outbound investment has brought increasing employment to the investment destination. Take the U.S. as an example, according to Rhodium Group , investment of Chinese companies in the U.S. has increased rapidly in recent years. In 2014 and 2015, Chinese direct non-financial investment in the U.S. amounted to USD 11.9 billion and USD 15 billion respectively. While in 2016, this figure saw a huge increase and hit US 45.6 billion, tripling that of 2015. By the end of 2016, Chinese investment has covered 44 states of the US, creating nearly 140,000 jobs here.In the near future, the Chinese investment here in the U.S. will increase further.
Thank you for your attention!