Friday, November 15, 2013, 07:36
Address on current economy
By China Daily

Editor’s note: The following is a speech delivered by Li Keqiang, premier of the State Council of the People’s Republic of China, at the 16th National Congress of Chinese Trade Unions on Oct 21.

Address on current economy
Premier Li Keqiang delivers a speech at the 16th National Congress of Chinese Trade Unions in Beijing on Oct 21. (YAO DAMING / Xinhua)

First of all, I wish to extend, on behalf of the Central Committee of the Communist Party of China (CPC) and the State Council, warm congratulations on the successful convening of the 16th National Congress of Chinese Trade Unions and the election of the new leadership of the All-China Federation of Trade Unions. I also wish to express sincere greetings to the hundreds of millions of Chinese employees and trade union officials and pay high respect to the Chinese working class. The working class plays an essential role in China’s development. I know you follow with great interest the current state and growth trend of China’s economy. Therefore, I have accepted invitation to talk to you today, and I will talk about three key issues.

First, the current state of the Chinese economy

The current state of the Chinese economy should be viewed against the background of the global economy. This government assumed office in an intricate domestic and international environment, particularly the weak recovery of the global economy. Major developed economies are all experiencing sluggish growth. Even those doing well are only growing by just over 1%, and others have registered negative growth. The larger economies among developing countries and emerging markets have grown at a rate of below 2%, and a few with better performance have only achieved no more than 5% growth. In 2010, China’s economy registered double-digit growth, up by 10.4% year-on-year. However, in the fourth quarter of last year, due to the combined impact of complex domestic and international factors, China’s growth rate dropped to 7.8%, and the trend of economic slowdown has continued into this year, with GDP growth being 7.7% for the first quarter and 7.5% for the second quarter respectively.

Why do I mention GDP at the very beginning of my address today? You may say we should not focus on GDP only. Of course, we shouldn’t. But after all, China is still a developing country, and development remains the basic condition and key for solving all the problems we face in China. More importantly, GDP for us means employment. In the past, every one percentage increase in China’s GDP created about one million jobs. Thanks to adjustment of economic structure carried out over these years, especially the accelerated development of the service sector, every percentage point of GDP growth now generates about 1.3 million or even 1.5 million jobs. I instructed the Ministry of Human Resources and Social Security and other relevant government departments to conduct an in-depth survey, and their conclusion is that in order to add 10 million new jobs each year, we need to maintain an annual GDP growth of 7.2%. In short, to ensure stable growth is to ensure employment.

What should we do in the face of downward pressure on the economy? To ensure stable growth and employment, we have two options. One is to increase deficit and money supply. In other words, to boost investment through deficit financing and printing money. While this could work within the year, space is needed for carrying out such fiscal and monetary policies. Moreover, it is hard to sustain such short-term stimulus. Currently, our deficit has reached 2.1% of GDP. What does this mean? The ceiling set by the EU is that a country’s deficit should not exceed 3% of its GDP. Of course, many EU members broke the ceiling and we all know the result, which is the European debt crisis. It has lasted for several years now. In some countries, economic growth has stalled and even contracted, unemployment is high, and welfare benefits are no longer guaranteed. Talking about money supply, China’s broad money supply (M2) exceeded 100 trillion yuan in late March, twice the size of its GDP. In other words, there is already a lot of money circulating, and more could lead to inflation. As you all know, when inflation goes out of control, it not only disrupts and damages the market, it can also cause a huge adverse impact and pressure on people’s lives and even lead to panic.

The second choice is to be firm in pursuing the policy of not increasing deficit and neither relaxing nor tightening money supply. And this requires us to maintain confidence and policy stability. Some comrades may ask whether this means standing still without doing anything. Of course not. It is like riding a bicycle, you will fall if you are not riding it. So we need to keep moving and seek progress while maintaining stability. This is the overall work guideline set by the central leadership. We need to make progress while maintaining stability. To achieve this goal, we should exercise macro control in an innovative way and take effective and well-targeted measures in keeping with the changing environment. We have taken measures in the following priority areas:

First, we have taken forceful measures to release the huge dividends of reform. You may recall that during the period from the Second Plenary Session of the 18th CPC Central Committee to the annual sessions of the National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference this year, we set the goal of streamlining administration and delegating power. Much can be done in cutting the size of the government and, more importantly, transforming its function. As we all know, there is an “invisible hand” of the market and a “visible hand” of the government. Some people complain that the government’s “visible hand” has become a “busy hand”, and one needs to apply for approval in doing everything. You may have watched a TV report about a “long march” cartoon showing the lengthy approval process. Sometimes, just one application requires over 100 stamps of approval. In addition, numerous inspections and collection of fees have become a huge burden on starting business. While we are sparing no effort to help create jobs and start businesses in cities, such approval processes and inspections have poured cold water on people who want to start business. So we are determined to cut the number of items subject to approval.

In the past six months and more, the Central Government has taken major steps to abolish or delegate to lower levels the power of approval over 221 items. The policy of streamlining administration and delegating power has sent a very positive signal to the public and the market, which is to spur employment and encourage people to start business.

The other day I read statistics on business registration. In the third quarter of this year, the number of new market entities nationwide grew by 18% year-on-year, and private businesses grew by 31%. This is an explosive growth compared with the past few years, and it shows that major progress has been made in the reform. So we have taken transforming government functions as the breakthrough point in advancing reform. An important goal of establishing the China (Shanghai) Pilot Free Trade Zone is to streamline administration and delegate power and explore the management model based on negative list. The government should delegate power that should be delegated and assume full responsibility over matters that fall within its mandate.

Of course, reform is not just about transforming government functions. We need to do more. Economic growth hinges on adequate financial resources, and as it is difficult to increase fiscal revenue, we have to make best use of available resources. We have required the government to tighten its belt to make the people live a better life. The central Party leadership has issued the eight-point regulations, and the government has also issued orders to cut spending on official overseas trips, vehicles for official use and official hospitality. Starting from this year, administrative spending of Central Government departments will be cut by 5%. This has made it possible for us to reduce tax on small and micro businesses and exempt value-added tax and business tax on such businesses with sales of less than 20,000 yuan each. This benefits six million small and micro businesses employing over ten million people.

We have also reformed the investment system. As part of the reform of government offices, the Ministry of Railways was abolished and the China Railways Corporation was established. The over two million employees in the railway sector have made enormous and irreplaceable contribution to our country, the people and passengers. However, the Ministry of Railways, an arm of the government, also had business functions. This caused difficulties in financing, and it depended on budgetary support and issuing bonds backed by sovereign credit. Railway construction therefore slowed down over the past two years. What should be done? China’s total length of railways is only 100,000 kilometers, while that of the United States is 250,000 to 270,000 kilometers. China’s per capita share of railway is much lower than that of the developed countries. The railway sector, particularly in Central and Western China, still has potential of growth. We have turned the Ministry of Railways into a corporation, separating business functions from government ones, and this has made it possible for the railway sector to gain wider access to financing and attract private capital. Of course we need to ensure the safety of the railways and national security. As building railways has returns, it is attractive to private capital. We need to create platforms and conditions to speed up construction of railways in less-developed regions.

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