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Creating New Dynamism Through Reform and Innovation

Address at the World Economic Forum

Annual Meeting of the New Champions 2014

By Premier Li Keqiang

10 September 2014

Dear Professor Klaus Schwab, Your Excellencies Heads of State and Government, Distinguished Guests, Ladies and Gentlemen, Dear Friends,

It gives me great pleasure to meet you here in Tianjin at the eighth Annual Meeting of the New Champions, or the Summer Davos Forum. On behalf of the Chinese government, I wish to extend warm congratulations on the opening of the Forum and a cordial welcome to all of you who have come from afar.

The theme for this year’s Forum, namely "Creating Value Through Innovation", is a most relevant one. Innovation is an eternal topic of the human society and an inexhaustible engine driving economic and social development. Innovation is vital to the steady recovery of the world economy. Innovation is also essential to upgrading the Chinese economy and improving its performance. And it is thanks to reform and innovation that the Chinese economy has in recent years maintained steady and sound growth.

The global economic environment has remained an intricate one since the beginning of this year. The road to recovery in developed countries has remained bumpy. Growth in emerging market economies has slowed down, and the Chinese economy faces greater downward pressure. Facing this challenging environment, we have continued to follow the general principle of making progress while maintaining stability. We have stayed the course and pursued a proactive approach. Instead of adopting strong economic stimulus or easing monetary policy, we have vigorously promoted reform and economic readjustment, and made efforts to improve people’s lives. As a result, we have maintained steady economic performance. In the first half of the year, the Chinese economy registered a 7.4 percent growth, and CPI rise was kept at 2.3 percent. Despite economic slowdown, between January and August, the surveyed unemployment rate was kept at around 5 percent in 31 big and medium-sized cities. More than 9.7 million urban jobs were created, which is over one hundred thousand more compared with the same period last year.

Despite growing downward pressure on the economy, more jobs were created, thanks to new steps of reform taken. Since the beginning of this government, we have advanced the reform of the administrative review and approval system. Government departments have removed or delegated to lower levels administrative approval on over 600 items, and this year, the business registration reform, among others, has been carried out nationwide. This has lowered the threshold for starting businesses and removed restrictions on them, thus giving a great boost to business development in the whole country. Between January and August, the amount of newly registered market entities was more than eight million, and from March to August, with the business registration reform, the number of newly registered businesses grew by 61 percent over the previous year, all pointing to a massive upsurge which has generated more than 10 million jobs. In addition to reforming the business registration system, we have also introduced reforms to investment financing, taxation and logistics systems, and further opened the gate for the development of the service sector and other emerging industries. All these measures have been vital in fostering and increasing job opportunities.

The positive changes in China’s economy are not only reflected in the increase of jobs and residents’ incomes, but also in the structural upgrading. We have streamlined administration, delegated powers to the lower levels, and adopted fiscal, taxation and financial measures such as targeted tax reduction and targeted reduction of required bank reserve ratio. All these measures have spurred the growth of the service sector, agriculture, rural area and the welfare of farmers, as well as small and micro-businesses, private businesses and emerging industries. In the first half of the year, new businesses and new business models such as logistics, express delivery and e-commerce all developed fast. The number of newly registered service businesses surged by more than 70 percent. The tertiary industry continued to outperform the secondary industry in terms of growth rate and share of GDP, and is a leading sector of the economy. The share of private investment in fixed asset investment increased by 1.4 percentage points year on year. High-tech industries and equipment manufacturing grew faster than the industrial average.

Deepening structural readjustment has improved the quality of economic growth. On the basis of carrying out reform and innovation, we have reduced overcapacity, eliminating outdated capacity in particular, and fostered new growth areas. In the first half of the year, the growth of investment and production of industries with high energy consumption and emissions noticeably slowed down. The per unit GDP energy consumption dropped by 4.2 percent year on year, and carbon intensity was cut by about 5 percent, the largest drop in many years.

We have managed to ensure steady growth and improve the quality of the Chinese economy by taking targeted, range-based macro-control measures. With focus on key areas and weak links of China’s economic and social development, we have used more reform and innovation measures to incentivize market entities, strengthen weak links, boost the real economy and ensure that our efforts are well-targeted. This approach, which was also structural adjustment in nature, involved both reform and readjustments. We have strived to remove market obstacles and make the market play a decisive role in resources allocation. We have also endeavored to improve the role of the government and promote social equity. We have worked actively to balance domestic and international demands, coordinate regional development, narrow the gap between rural and urban areas and stabilize agricultural supply and demand. We have strengthened the construction of railways in central and western China, the renovation of rundown areas, as well as pollution control and prevention and other livelihood and development projects. We have actively tackled the bottlenecks that have long constrained China’s balanced development. All of these have vigorously supported the process toward a new type of industrialization and effectively increased the supply of public goods.

Facing the new normal state of the global and the Chinese economy, we have remained level-headed and taken steps to tackle deep-seated challenges. We focused more on structural readjustment and other long-term problems, and refrained from being distracted by the slight short-term fluctuations of inpidual indicators. In July and August, electricity consumption, freight volume and other indicators fluctuated somewhat. That was inevitable and within our expectation. It was because the domestic and international economic situation was still complex and volatile and base figures for the second half of last year were relatively high. When observing the Chinese economy, one should not just focus on its short-term performance or the performance of a particular sector. Rather, one should look at the overall trend, the bigger picture and the total score. Judging by the principle of range-based macro-control, we believe the actual economic growth rate is within the proper range, even if it might be slightly higher or lower than the 7.5 percent target. In particular, we should realize that an important goal of maintaining stable growth is to ensure employment, and the floor of the proper range is to ensure relatively adequate employment. As the economic aggregate continues to expand, and in particular, as the service sector develops rapidly, growth will mean more jobs and there will be greater tolerance to fluctuations. We should also be clear that China’s economy is highly resilient and has much potential and ample space to grow, and we have a full range of tools of macro-control at our disposal. The measures we have taken are good both for now and for longer-term interests, and will therefore enable us to prevent major fluctuations and make a "hard landing" even less possible. However, this is not denying that our development faces difficulties and challenges. On the contrary, we are indeed confronted with enormous difficulties and challenges.

In the four months ahead, we will coordinate the efforts to stabilize growth, promote reform, readjust the structure, improve people’s livelihoods and prevent risks. We will continue to improve and innovate in the thinking and approaches of macro-control, strengthen targeted macro-control on the basis of range-based macro-control, promote structural reform and readjustments, carry out reforms in key areas of systemic importance with every determination to forge ahead and focus on addressing long-term problems. First, we will continue to press ahead with revolutionizing the government itself and further intensify efforts to streamline administration and delegate powers. We will deepen fiscal and taxation reform, promote reform of the budgetary management system so as to use public funds in an equitable and effective way, and continue to expand the pilot programs for business tax to VAT reform which is conducive to the development of the service sector, particularly the R&D companies. We will deepen financial reform, promote the pilot programs for non-state owned banks, sort out and standardize the limit requirements on access to the financial sector and develop a multi-tiered capital market. We will deepen the reform of state-owned enterprises. We will deepen price reform and improve the pricing mechanisms for energy products, medicine and medical services. We will deepen reform of the investment system and implement government purchase of service contracting, public-private cooperation models and franchise operation system. Second, we will continue to focus on tackling the deep-seated structural problems, further increase the effective supply of public goods to generate effective demand, strengthen weak links in investment, increase household consumption and nurture new growth areas. Third, we will continue to ensure efficient use of both the existing and the increase of fiscal and financial resources and further scale up support for the real economy and emerging industries and businesses, for the greater benefit of rural areas, agriculture and farmers, as well as micro-businesses and the service sector. These efforts are aimed at turning the gains of reform into new dynamism of development that would bring more benefit to the people. We have all the confidence, ability and resources to overcome the difficulties and realize the major goals of China’s economic and social development in 2014.

Ladies and Gentlemen,

China is still a developing country. We must give top priority to economic development. Only development will deliver progress. Ultimately, it is only development that will resolve all the problems in China. We cannot advance without changing the growth model, nor can we advance without adequate development. Of course, the development we pursue should be one that promotes employment, increases incomes, improves economic performance and boosts energy conservation and environmental protection. It should be scientific development, namely, sound and balanced development that is in keeping with the laws governing economic activities, social development and nature.

Currently, there are many destabilizing and uncertain factors in the global economy, and China’s economic development also faces an array of overlapping and deep-seated problems. It is in a critical stage where its path upward is particularly steep. In the latter half of the year and beyond, we will further accelerate the transformation of the development model, push forward structural readjustment through structural reform, make good use of the "golden key" of innovation and promote institutional innovation as well as innovation in science and technology. By so doing, we will be able to maintain a medium-high growth rate, move toward medium-high level of development, create more value and upgrade the Chinese economy.

We will accelerate the pace of institutional innovation. Innovation has been the ultimate cause of the leapfrog development of the Chinese economy. China’s innovation involves not only technology but more of institution, management and growth models. China’s reform and opening-up for the past three decades and more has in itself been a huge innovation drive, and the huge, untapped potential of innovation and development in the future still lies in institutional reform. Just imagine how big a force it could be when the 800 or 900 million laborers among the 1.3 billion population are engaged in entrepreneurship, innovation and creation. I believe the key to realizing that is to further liberate our mind, further liberate and develop the creativity of society, further energize businesses and the market, and remove all institutional obstacles to development so that everyone interested in starting a business is given more space for entrepreneurship and the blood of innovation could flow unhampered in a society where everyone is full of the spirit of self-development. When reform and innovation fuels the massive wave of entrepreneurship by the people and at the grassroots level on the land of the 9.6 million square kilometers of China, the enormous power of the diligent and resourceful Chinese people will be fully unlocked and the engine driving China’s sustained economic development will constantly regenerate itself and remain powerful.

China’s effort to comprehensively deepen reform is an ongoing process. The government is taking the lead in conducting a "self-targeted revolution". Just like an arrow shot, there will be no turning back. We will deepen the reform in the administrative approval system. We hope to complete the task of removing and delegating items subject to government approval, originally planned for five years, in a shorter period of time. This is to unleash the potential of the market and the driving force for development. If streamlining administration and delegating power is like taking a proactive move in the chess game, then introducing new systems is like a "serial blast". On the one hand, we should provide the list of government powers which defines the scope of what the government should do. Items not found on the list will be deemed as not permissible. Only in this way could we prevent the abuse of government power, reduce rent-seeking and ensure that the government better performs its duty of serving the people. On the other, a negative list should be formulated which defines areas off-limits to businesses. Items not found on the list will be deemed as permissible. Only by so doing could we build open and transparent systematic arrangements with stable expectations and bring about enterprises’ vitality to the fullest extent. Moreover, we should formulate a list of government responsibilities to define how the government should regulate the market. All items on the list should be fulfilled by the government. Only by so doing could we build and sustain a market environment that favors honest operations and fair play, energizes businesses and encourages innovation and creativity. The government should enhance ongoing and ex-post oversight and perform its role well both as a referee of the market order and as a guardian of reform and innovation. As a saying goes, only by weeding out the barnyard grass can rice grow properly. Being lenient to law breakers is tantamount to doing wrong to law abiding people. It could even result in "bad money driving out the good". We will mete out stringent punishment to companies, domestic or foreign, that are involved in producing counterfeit, fake and shoddy products, engaging in fraud and deception, and stealing trade secrets. Protecting intellectual property rights is in fact protecting the kindling of innovation and creativity and the rights and interests of innovators. We will penalize serious IPR infringement to the fullest extent in accordance with the law, including imposing heavy fines to make law breakers pay insufferable prices, so as to propel innovation.

We will step up science and technology innovation. The Chinese economy is among the largest in the world, but in many sectors China still ranks fairly low and its traditional, extensive way of seeking growth has been proved unsustainable. Readjusting the structure must be driven, more than ever, by science and technology progress, and that requires strategic, structural, and innovative readjustment. We will support and provide guarantee to certain sectors and curb and scale back some others, cultivate and promote new products and new businesses and speed up the development of service, high technology and emerging sectors. At the same time, we will phase out overcapacity, accelerate the transformation of traditional sectors and eliminate outdated capacity so that Chinese products and China’s service sector can move up the global value chain and more value could be created through innovation. We must invest more in human capital and increase the ranks of high-caliber workers. We will improve the technological sophistication, quality and brand awareness of Chinese industries. In particular, we need to step up reforms to remove restraints on innovation by inpiduals and companies. When the talent of all, or at least most of the nearly 200 million professionals and skilled workers is brought to the full, a new pattern of innovation by the people and innovation by all, supported by the massive physical and mental power of the people and the strength of China’s manufacturing and creative capability, will be fostered. This, coupled with the development of advanced and even revolutionary technologies, will create more value and move China’s development to a higher level.

China faces uneven development between its urban and rural areas and among its different regions. But the existing disparity, which is quite striking, can entail a huge potential. Promoting a people-centered, new type of urbanization will be in itself the biggest structural readjustment. We will seize opportunities brought by technological advances and global industrial revolution to speed up the development of such schemes as "broadband China" and "smart cities", leverage the role of cities across the country in galvanizing hinterland development, promote urban-rural integration and a gradient development of different regions and bring about a synchronized progress of the new type of industrialization, IT application, urbanization and agricultural modernization. At the same time, we will vigorously develop programs related to people’s wellbeing, promote equal access to basic public services and strengthen social security, including providing security to those who failed in their entrepreneurial endeavor to help them restart businesses. We will continue to increase household consumption and make sure that greater internal demand could serve as a new power to drive economic growth.

The Chinese economy, now heading toward further growth, is also being weighed down by increasing resources and environmental constraints. It is imperative for us to enhance energy conservation and environmental protection. Tackling climate change is not only our binding international obligation as a major responsible country, but also the pressing need for our own development. There is no turning back in China’s commitment to a sound eco-system. We have declared war on pollution and earnestly fulfilled our due international responsibilities. We are studying the action targets on greenhouse gas emissions control, including the peak of CO2 emission, the carbon emission intensity reduction and the increase in the share of non-fossil energy by 2030 and beyond. We have the resolve, the will and the capability to pursue green, circular and low-carbon development. We will keep focusing on scientific and technological innovation and make hard and unremitting efforts to step up environmental management, boost the development of energy conservation and environment protection sectors, fulfill the task of energy conservation and emissions reduction, and work with other countries to effectively address global climate change.

Ladies and Gentlemen,

We now live in an era defined by deepening economic globalization, with countries increasingly depending on one another in interests and sharing their destinies closely. The world needs China, and China needs the world. China’s endeavor to realize the two centenary goals (namely, to complete the building of a moderately prosperous society in all respects when the Communist Party of China celebrates its centenary in 2021, and to turn China into a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious when the People’s Republic of China celebrates its centenary in 2049) and the Chinese dream of the great renewal of the Chinese nation will present great development opportunities and a huge market to the world. Instead of "I win, you lose" or a "zero-sum game", we need win-win or all-win, which ensures mutual benefit. Only in this way could the world prosper and advance forward. China is resolute in following the path of peaceful development. China is a defender and builder of the existing international system and is dedicated to maintaining an overall environment of peace and stability. We call for observance of the basic norms governing international relations and believe that regional conflicts and hotspot issues should be solved peacefully and politically through dialogue. We stand ready to deepen cooperation with our Asian neighbors, properly handle differences as there may be, maintain the overall interest of stability and security and uphold the order of peace. We advocate the building of an open, fair and integrated global market and support the establishment of both multilateral free trade arrangements and bilateral FTAs, in order to build a high-standard FTA network that is globally oriented. We oppose protectionism in all its forms and do not favor fighting trade wars. We will continue to pursue a more proactive strategy of opening-up and improve the open economic system. We will focus on stabilizing export and actively expanding import. We will move faster to bring greater openness in the service sector, as well as China’s areas bordering other countries and its vast central and western regions. We will follow a stable and more open policy on foreign capital. We will continue to improve and standardize the business environment, in order to attract more foreign businesses and investment and draw upon and adopt the advanced technologies, mature managerial expertise and fine cultural achievements of other countries. China will always be a major country committed to learning from others and to being open and inclusive. Acting on the basis of its actual conditions, China will strive to become a major country driven by innovation.

As the saying goes, great vision that makes a country prosper is but the result of collective wisdom. In other words, wisdom comes from the people. In the same line, the massive entrepreneurship and innovation by all, as I emphasized earlier, will generate enormous power. Today more than any other time, we need reform and innovation and the sharing of the result of reform and innovation. To use a Chinese idiom, the fire will burn higher when everyone adds wood to it. I hope that all our distinguished participants will speak up your minds, jointly explore ways for reform, innovation and open development, share your views on how to create value and achieve mutual benefit, and do what you can to help China’s economic development and world prosperity and progress.

Let me conclude by wishing this Summer Davos a complete success, and I wish all of you a successful Forum and very good health!

Thank you.