Jessica Tan, Co-CEO of Ping An Group: I would like to ask a question about openness of the financial sector on behalf of the international financial industry attending the Annual Meeting. You mentioned this morning that China will continue to open up its financial services industry, in fact, faster than expected in 2020. On the one hand we see the restrictions on various foreign investments in banking, insurance, and securities are being lifted and these sectors are increasingly open. On the other hand, we also see the liberalization of the financial service sector internally being promoted, particularly on private investments. However, there have been some Internet finance companies who have done some wrongdoings, leading to significant losses for investors, many of them small ones. So how would China strengthen the financial services regulation, particularly protecting the interests of investors both at home and overseas?
Premier Li: In order to protect the interests of investors at home and abroad and the rights and interests of consumers, the Chinese government has intensified fair and impartial regulation in the broader context of ensuring financial stability. Despite the new downward pressure on the economy, the Chinese government has not resorted to excessive money supply. We have pursued a prudent monetary policy and kept the RMB exchange rate basically stable at an adaptive and equilibrium level. This is to prevent speculation and protect the lawful rights and interests of investors and consumers. More importantly, this is aimed to maintain the steady growth of the economy and provide positive expectations for the market and businesses.
Maintaining financial stability and keeping to a prudent monetary policy does not mean that no anticipatory adjustments or fine-tuning will be made when necessary. The fact is, over the past years, we have lowered the required reserve ratio several times as necessary and intensified targeted cuts in the required reserve ratio. More recent measures include using some medium and long-term financing instruments to support small and medium-sized banks in lending to small and medium-sized enterprises and private companies, and reducing real interest rates. Further opening China’s financial sector to foreign investors not only generates opportunities for them to enter the Chinese market, but also helps the Chinese financial sector to upgrade and run at a higher standard on a level playing field.
While adjusting policies and measures as appropriate, we are also intensifying financial regulation. As we make the financial sector more open, we will see to it that the rights and interests of consumers are effectively protected. A fundamental principle that applies here is to conduct regulation and supervision in accordance with the law. A clear line must be drawn between what is lawful and what is not. And the government should then exercise effective regulation accordingly and leave no gaps in such regulation. We must exercise effective oversight over properly licensed financial institutions and step up regulation against unlawful operations which are like driving without a license.
Over a period of time, we have been taking measures to tackle shadow banking and illegal fund-raising to effectively protect the rights and interests of consumers and opportunities for lawful investors. We have put in place a deposit insurance regime which has played its role in handling risks associated with small and medium-sized banks that have run into difficulties. This regime has worked effectively in protecting, first and foremost, the lawful rights and interests of depositors, namely consumers. Going forward, we will further open China’s financial sector in a step-by-step manner and enhance the quality and effectiveness of financial regulation. This way, we will ensure the long-term steady growth of the Chinese economy and its financial sector.
Flemming Besenbacher, Chairman of Carlsberg Group: Premier Li, thank you for your excellent speech this morning, a very interesting speech. As a university professor, now also a member of Chinese Academy of Sciences, I greatly admire China for your long-term investment in education and research and development. I think this is the only way to combat some of the grand challenges we are seeing in our society today like climate change, environmental change and change in biodiversity. I have two questions for you relating to the private enterprises. The Chinese government has been gradually implementing further tax and fee reduction policies and financial support policies in favor of enterprises, especially private ones. As the external environment today is worsening, will the Chinese government introduce more measures to help private enterprises survive and develop? The second question is, what measures will the government take to unlock the potential of this huge market?
Premier Li: I am happy to see a university professor here. I know the Davos Forum is not just an economic forum for gathering of business leaders, but also an important one for representatives from the academia. This shows that the Forum is both open and inclusive.
In the face of slowing global growth and rising protectionism, China’s economy has also come under new downward pressure, which is reflected in how it has rather directly affected the development of small and medium-sized companies and private firms in China, and even the survival of some enterprises. So, we must pay very close attention to this development.
For decision makers in the economic domain, the top priority remains employment. Small and medium-sized companies and private enterprises contribute over 80% to employment in China. They are a key force supporting employment. These companies account for over 60% of GDP. Hence, they are also a key pillar for China’s economic development.
To address the difficulties facing small and medium-sized enterprises, at the start of this year, we introduced general-benefit tax cuts worth 200 billion yuan for small and medium-sized companies, most of which are private firms.
Starting from 1 May this year, we introduced tax cuts for enterprises of various types, especially manufacturing companies, to the tune of 1.7 trillion yuan for the whole year. A large number of small and medium-sized companies stand to benefit. What’s important now is to ensure full delivery of these measures.
We have noted that fiscal measures alone are not enough. Small and medium-sized enterprises and private firms still face difficulties in accessing affordable financing. And the general situation is that these companies face a visibly higher borrowing cost than big companies. We must take measures to bring down the cost meaningfully, and work toward cutting it by one percentage point this year.
We anticipated that the economic environment would be complex this year, and have rolled out a series of measures accordingly. The intensity of the current tax cuts on the fiscal front is unprecedented, and such measures are the fairest and most direct and effective. In terms of the monetary policy, we have taken care to keep it prudent and made appropriate fine-tuning when needed. We could say that the money supply is on the whole reasonably sufficient. The issue now is how to notably bring down real interest rates for small and medium-sized firms and private companies by the end of this year through effective transmission measures.
At the macro policy level, we have at our disposal such instruments as targeted cuts in the required reserve ratio and will use them when needed. We also have other financing support instruments targeting private companies and small and medium-sized firms. I believe the issue now is to make sure that these policy measures be effectively transmitted to companies.
In a nutshell, the answer to all the questions you asked is that China’s guiding principle is clear: we will keep to reform and opening-up, and foster a world-class, market-oriented business environment governed by a sound legal framework. Yet, given the varying realities across the country, you may encounter problems of one kind or another. We do not deny this, and will work actively to resolve problems, including the difficulties private companies face in their development as mentioned before. I am confident that when we face difficulties squarely as they arise and keep working to tackle them, the fundamentals of China’s economy will remain sound and continue to improve, though challenges would invariably arise along the way.
I agree with what you said that educational development is of fundamental importance. China is a big market of nearly 1.4 billion people for all to see, yet the resilience of the country’s development lies in the current 170-million-plus people who have received higher education or vocational education. If China’s average years of schooling of 10.5 years were to rise by one or two years, and if our population who has received higher education or vocational training would exceed 200 or even 300 million, that would mean immeasurable creativity and enormous market potential. Furthermore, this will contribute to fairer competition between Chinese and foreign companies and hence reinforce the development opportunities for all countries involved. Thank you.
Klaus Schwab: Thank you so much, Mr. Premier. Our business leaders here know how difficult it is to manage a company. Now just imagine to manage an economy with all its impact on society and on employment particularly. And then imagine to manage an economy of 1.4 billion people, and then imagine an economy where you have sometimes headwinds and disruptive surprises in the global environment. But I think your speech this morning and your very detailed, comprehensive responses to the questions raised, sometimes difficult questions, have shown us that the economy is in good hands, you have a good roadmap, and we can have confidence into the future of China. All our best wishes accompany you in your very difficult, challenging but very, very important task, not only for China but for the world.
Premier Li: Thank you, Mr. Schwab. All foreign friends present both from the business and academic communities are welcome to involve yourselves more deeply in China’s reform, opening-up and modernization process. We face the future with optimism, yet also confront challenges and difficulties squarely. We are for inclusive development and win-win. This is for China, and also for the world.