Along with five other economists, I attended a July 15 symposium on the current economic situation held by Premier Li Keqiang in Zhongnanhai, the central Beijing compound that houses most of the Chinese leadership. I would like to share a few thoughts on the meeting.
The topics of discussion reflected policymakers’ major concerns, including the growth impetus, risk control and executing reform. Two economists talked about the export situation and public consumption; two talked about real estate and finance; and the final two talked about economic reform and restructuring the economy.
Li was very attentive when the economists spoke. His questions were mainly about the reliability of data, the basis of judgments, the specific meaning of an opinion and the feasibility of policy suggestions.
One scholar proposed a national construction treasury to fund investments in public infrastructure and services.
“You make a good point,” Li said. “National bond issuance involves the issue of the deficit-to-GDP ratio. I want to know what the proper ratio is according to your calculations. Please continue with your research and provide further advice.”
When I said that some private enterprises have concerns about mixed ownership reform at state-owned enterprises, Li asked me what kind of concerns they had. I said they want to know what kind of assets the government will offer, what stake private capital could take and whether the government would intervene in the operations of the mixed-ownership company.
With a PhD in economics, a top national economics prize and an economic theory – Likonomics – named after him, Li is governing the country as a real expert.
He also talked about the target for growth. In a speech in London on June 18, Li said the government will ensure the growth rate for the year is no lower than 7.5 percent. The figure is higher than the previously proposed 7 percent, triggering broad discussion.
At the symposium, Li said the translator at the speech in Britain missed the word “about,” so the target is actually about 7.5 percent.
“As long as development brings jobs and incomes increase, it is of high quality and efficiency, it saves energy and protects the environment, and the reports are truthful, a growth rate a little bit higher or lower than 7.5 would be acceptable,” he said.
A proper growth rate should be based on an in-depth study of China’s potential growth rate, Li said.
Reform was Li’s top concern at the meeting. When talking about the need to increase the supply of public goods and services, Li said reforms should be implemented in the investment and financing areas in order to develop a more diversified model that involves both the government and the private sector.
I said in my speech that the government needed to be clear about its position in the market. It should further break administrative monopolies and remove barriers to private capital in some areas.
Li then said that innovation should not only happen in the scientific arena. Institutional innovation is more important, he said, and this is where China has plenty of room for improvement. “Enlivening the system and institutions with deepened reform will generate tremendous energy,” he said.
Li also explained the government’s approach to “targeted adjustment.”
“Some people think this is just about reducing the reserve-requirement ratio, but this is a misunderstanding,” he said. “It should include streamlining administration and delegating power to the lower levels, effectively increasing the supply of public goods and services, and strongly supporting the real economy.”
Li used a farming metaphor to make his point. Targeted adjustment should be “drip and sprinkler irrigation” instead of “broad irrigation,” he said. The adjustments should occur in key and weak areas.
More than six months after a roadmap for reform was set out at the third plenary meeting of the Communist Party’s 18th Central Committee, execution still faces obstacles, including old perceptions, vested interests and bureaucracy.
Li said at the meeting that despite the fact the new leadership had taken efforts to decentralize power and streamline administrative procedures, many problems remain in lower-level governments. “Some supervise too much,” he said, “while others fail to do their own jobs.”
This is not the first time Li stressed the implementation of reform. At a cabinet meeting on March 19, he said: “There are great difficulties in the task (of decentralization), but it must be done!”
*Liu Shengjun is the deputy executive director at China Europe International Business School