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China has struck deep with reforms
November 13, 2013, 7:23 am

China’s current economic situation should be viewed as part of the global economic environment. Since the newly elected government took office, we have encountered a complicated environment both in China and abroad. The world economy is sluggish, growth in developed economies declining, it is at best only around 1 percent and at worst there is negative growth. Several of the largest developing and emerging economies have grown no more than 2 percent, with only a few hitting nearly 5 percent. In 2010, we obtained two-digit growth, reaching 10.4 percent. However, in the fourth quarter of last year, because of multiple complexities, growth decreased to 7.8 percent, and it continued to fall to 7.7 percent in the first quarter this year, and 7.5 percent in the second quarter.

The new Chinese leadership has vowed to modernize the economy [Getty Images]

The new Chinese leadership has vowed to modernize the economy [Getty Images]

Why am I talking about Gross Domestic Product (GDP) first? You will probably say we should not focus single-mindedly on GDP. This is true. But we are still a developing country and development is the key and the basis for us to solve all our problems. More importantly, when we focus on GDP, we are actually focusing on employment. We once increased employment by 1 million people for every percent of GDP growth. Due to the economic restructuring in the past few years and the accelerated development of tertiary industry, every one percent of GDP growth has created 1.3 million to 1.5 million job opportunities. The Ministry of Human Resources and Social Security and relevant departments calculated the statistics more than once, on my request. They said that if we are to ensure that 10 million job vacancies are created and registered unemployment remains at about 4 percent in cities and towns, we need about 7.2 percent GDP growth. We need stable growth in order to create employment.

How, then, should we deal with the declining economy? We have two options to maintain economic growth and sustainable employment. One is to increase the fiscal deficit and expand the money supply. This might be effective in a particular year, but fiscal and monetary policies need to work together. Short term stimulus policies cannot be sustained. Our deficits have already reached 2.1 percent. What does that mean? Look at the European Union. It passed regulation to prevent deficits from exceeding 3 percent of GDP. However, many countries did not conform to the rule and their deficits went above the warning line. You all know the consequence: the European debt crisis broke out and has lasted for several years. The economies in some countries have been in continuous decline.

China has unveiled its economic blueprint for the next decade after a four-day closed-door meeting ended on Tuesday [Getty Images]

China has unveiled its economic blueprint for the next decade after a four-day closed-door meeting ended on Tuesday [Getty Images]

Unemployment is growing and the welfare is often not fulfilled. In terms of currency, the outstanding broad money supply (M2) in our country by the end of this March has exceeded 100 trillion yuan, twice as much as our GDP. In other words, there is enough money in the pool. Had it increased any more, inflation would probably also have increased. You all know that hyper-inflation would not only destroy the market, but also have huge negative impact, put pressure on people’s lives, and even cause a panic among people.

The second option is to carry on without expanding the deficit and neither loosen or tighten monetary policy. This requires us to maintain sustainable policies. Some of you will say, does this mean doing nothing and just standing where we are? We can’t do that. If you don’t move ahead, you will be like a cyclist. If he stops, he will sway several times and may fall off. So we have to move ahead, to move forward while maintaining stability, and that is the fundamental point that has been made by the central government. How can we move ahead while maintaining stability? We need to be innovative in our macroeconomic control, taking effective and focused measures according to the changing situation. To do this, we have focused on the following areas:

Firstly, we have struck deep and have endeavored to release huge dividends from reform. Comrades, you may still remember, from the Second Plenary Session of the 18th CPC Central Committee (Feb. 26) to the National People’s Congress (Mar. 5-17) and Chinese People’s Political Consultative Conference (Mar. 3-12) held this year, we have put forward simplifying governance and decentralizing power. This means both downsizing the government and transforming its functions – and there is huge potential in both areas. As you know, there are the so-called “two hands” – the invisible hand is the market and the visible one is the government. Some people say that the government’s “visible hand” has become a “restless hand,” because all business has to be approved.

While we are doing our best to create new jobs and facilitate entrepreneurship, numerous approval procedures and inspections are destroying people’s enthusiasm for starting their own business. This is why we are determined to simply administrative approval processes.

The China (Shanghai) Free Trade Pilot Zone were established with one vital aim for simplifying governance, decentralizing power and exploring a new approach in negative list management. The government should let go of what should be let go and control what should be controlled.

"We must open more to the outside world," asserted Li [Getty Images]

“We must open more to the outside world,” asserted Li [Getty Images]

We must open more to the outside world. After years of efforts, China has become the world’s second largest economy. The fact that our export industry has become increasingly competitive has played an undeniable part in this. Many Chinese have been abroad, and we can see products labeled “made-in-China” everywhere. However, due to the sluggish global economy, the World Trade Organization (WTO) has continued to reduce its world trade volume and growth forecasts. A trade war has emerged. Every country is trying to protect its own industries and job market.

But this protection is protection of backwardness, which is something that cannot be protected. As a large country, China mainly relies on domestic demand, but exports should also be kept stable, because about 30 million people are employed directly in the export industry, and about 100 million people in related support industries. A rapid drop in exports would cause problems in employment, therefore we should carry out reasonable foreign exchange, safeguard our national interests and oppose trade protectionism.

You probably still remember the China-Europe photovoltaic case that emerged in April and May this year. The European Union attempted to conduct a so-called “double reverse investigation” of China’s photovoltaic products. During my tour of European countries, I repeatedly said this would harm others and not benefit the EU. Besides, if the EU really carried out the investigation and imposed an additional 47 percent punitive tariff, our photovoltaic companies would have to withdraw completely from the European market. Therefore I said that, China would take countermeasures.

After I returned to China, I went to visit the biggest domestic photovoltaic company. I was told that although there was a two-month mitigation period for negotiations, the company would not be able to survive for more than two months if the tariff were imposed. How many people are involved in the photovoltaic industry? More than 400,000. It is not just an employment problem for 400,000 people. Once we set such a precedent, those countries would never stop. Many trade wars will break out aiming at taking sanctions against China. China is number one in the world in terms of export volume. We must hold high the banner of opposing trade protectionism, and oppose the “double-reverse investigation” and other measures. For this reason, I spoke to the EU leaders from Beijing, negotiated with them and solved the problem through consultation.


This text is part of excerpts from the Chinese Premier Li Keqiang’s report on the Chinese economy and the way-ahead at the 16th National Congress of the All-China Federation of Trade Unions (ACFTU).