Pursue High-quality Development, Work Together for Global Economic Prosperity and Stability
– Speech by H.E. Liu He at the World Economic Forum Annual Meeting 2018
24 January 2018
Dr. Klaus Schwab,
Ladies and Gentlemen,
Good morning! Let me begin by thanking Dr. Schwab for inviting me to the forum. President Xi Jinping came here last year and delivered a speech entitled “Jointly Shoulder Responsibility of Our Times, Promote Global Growth”, in which he expounded on China’s firm support for economic globalization. That speech was warmly received by the international community.
Over the past year, in line with the propositions of President Xi, China has stood firm against all forms of protectionism. We have worked to strengthen the protection of property rights and promote fair competition. Just as important, we have broadened access to our financial markets and taken the initiative to increase imports. With efforts to advance the Belt and Road Initiative, we are moving economic globalization forward with concrete actions.
Dr. Schwab asked me to talk about the 19th National Congress of the Communist Party of China (CPC) and China’s economic policy for the next few years. So let me make the following observations. The 19th Party Congress established China’s new central leadership with President Xi at its core, and “The Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” was adopted as the guide to China’s development. It mapped out the objective to complete the building of a moderately prosperous society in all respects by 2020 and to turn China into a great modern socialist country in two steps by 2050.
It also charted the course for China’s economic policy over the next couple of years. The report of the 19th Party Congress is a highly transparent policy agenda. It lays out the promises that will be delivered to the Chinese people. The fulfillment of this agenda will also bring about new opportunities for the development of other countries in the world. I recommend this report to those of you who are keen to learn more about China’s future policies.
This top-level planning of China’s economic policy for the next few years is designed in light of the above-mentioned objectives. In a nutshell, this policy centers around a Key Necessity, a Main Task, and Three Critical Battles. Let me explain one by one.
The Key Necessity here is that China’s economy has been transitioning from a phase of rapid growth to one of high-quality development. It is in this context that China formulates its macroeconomic, structural, reform and social policies for the coming years. This transition is an inherent part of the course of economic development. China’s per capita income is moving up from the current level of US$8,000-plus to US$10,000 and even higher. At such a stage of development, China needs to put more emphasis on structural improvement rather than quantity expansion.
Our focus needs to change from “Is there enough?” to “Is it good enough?” As we open up wider to the outside world, this transition to a new model of development will create huge opportunities for many new industries. This may well include manufacturing and service industries related to higher-quality consumption, as well as energy-efficient buildings, smart transportation, new energy and many other green and low-carbon industries in new cities. It means new opportunities for businesses not just in China but across the world. And the knock-on effect on other industries will be even greater as it is about the modernization of the entire economy.
In fact, changes are already taking place. Our domestic demand has steadily expanded, with consumption contributing 58.8% to economic growth, nearly four percentage points higher than five years ago. The added value of the service sector takes up 60% of GDP, more than five percentage points higher than five years ago. And with more rural migrant workers settling down in cities, permanent urban residents have increased by another 80 million-plus in the past five years, accounting for 58.52% of the total population, nearly six percentage points higher than five years ago. Meanwhile, China’s energy intensity – a measure of energy consumption per unit of GDP – has fallen by 23.9%.
The Main Task is to advance supply-side structural reform. The principal contradiction in China’s economic development is that our supply side fails to evolve in step with the demand, resulting in a structural mismatch that urgently needs to be fixed.
To improve the quality of the supply side through reform is the basic pathway leading to high-quality development. The priority at the moment is to cut excess capacity where necessary, reduce inventory in the housing sector, bring down the overall leverage ratio, lower cost across the board, and strengthen the weak links in the economy ranging from public services to infrastructure and institutions.
With these measures, we hope to make the supply side more adaptable and more innovative. Some initial progress has been made. Since 2016, we have cut over 115 million tons of steel capacity, eliminated an additional 140 million tons of substandard steel capacity, and phased out over 500 million tons of coal capacity. We have adjusted the supply-demand relationship through market clearing, which has led to price rises in some sectors. As we can see, total factor productivity growth stopped its decline and began to increase in 2016. The positive spillover of our supply-side structural reform is being felt across the world. Indeed, this is a reform that we must continue and see through.
The Three Critical Battles which China is determined to fight include: 1) preventing and resolving the major risks, 2) conducting targeted poverty reduction, and 3) controlling pollution. As we all know, if a bucket is to hold more water, its shortest plank must be made longer. Likewise, for China to build a moderately prosperous society in all respects, we must fix the shortest plank in our development through winning these battles.
First, we need to continue to prevent and resolve major risks in China’s economy, including financial risks. Shadow banking and hidden debt for local governments are serious problems we have to deal with.
We will continue to make progress while maintaining stability. In about three years’ time, we will strive to bring the overall leverage ratio under effective control, make the financial system more adaptable and better able to serve the real economy, prevent systemic risks and facilitate better flow of economic activities.
We have full confidence and a clear plan to get the job done. Our strategy is to fix the problems on the way forward through reform and development. And our tactic is to pick up the most important issues and find solutions.
We have many favorable conditions on our side. The Chinese economy is steadily turning for the better with enduring, robust fundamentals. Huge potential remains to be tapped in urbanization, innovation and the transformation of traditional industries.
Our financial system is basically sound with a high savings rate. We have already set out to properly handle a series of risks. Since the fourth quarter of last year, China has had a marginally slower overall leverage ratio growth, which is a good sign.
In addition, strengthened risk awareness and changing market expectations on implicit guarantee or moral hazard have created important psychological conditions for us to prevent and control financial risks. I would like to highlight that the build-up of China’s financial risks and our response to them are closely related to the changing global market. We welcome the participation and cooperation of the international community in China’s endeavor to address financial risks, as it is part and parcel of global efforts to uphold world economic stability.
Second, China will continue with smarter, more targeted efforts to lift more people out of poverty. In the last five years, under President Xi’s leadership, we started an unprecedented campaign against poverty. As a result, the number of rural residents living in poverty dropped from nearly 100 million to around 30 million. We have set a target to basically eliminate absolute poverty in three years, which means no single rural resident will be living below the current poverty line.
This year alone, China will lift 10 million people from absolute poverty, including 2.8 million who will be relocated from areas suffering from harsh conditions. These poverty alleviation efforts have a major impact on the distribution of national income. Such efforts embody the Chinese approach to human rights, and will contribute to the global cause of poverty reduction.
Third, China will continue its fight against pollution. Green and low-carbon development is what the Chinese people want the most in a break with the traditional growth model. In the next three years, China will scale up pollution control to substantially cut the total emissions of major pollutants and lower the intensity of resource consumption.
Such efforts are expected to improve the environment. They will make our development more eco-friendly and our skies blue again. These are the concrete actions China will take to fulfill its pledges to counter climate change and to honor the Paris Agreement. China will stay committed to improving the environment and work more closely with the rest of the international community in this area.