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China Premier Outlines Plans for Economic Reform

China has seen lackluster times of late, with its economic growth slowing to 7.4% in 2014—its weakest in 24 years—compared to 7.7% in 2013, its manufacturing growth contracting for the second straight month, and its continued U.S. apparel market share loss to lower-cost nations like Vietnam.

To ease concerns surrounding China’s economic situation, Premier H.E. Li Keqiang endeavored to highlight what’s really going on in China and outline plans in place for reform in a talk at the World Economic Forum Annual Meeting 2015 in Davos, Switzerland last week.

“The Chinese economy has entered a state of new normal,” he said. “The gear of growth is shifting from high speed to medium-to-high speed, and development needs to move from low-to-medium level to medium-to-high level. This has made it all the more necessary for us to press ahead with structural reform.”

Growth speed may have moderated, but Keqiang said the economy will enter a more advanced development stage, with better division of labor and a more optimized structure. He pointed out that even 7 percent growth will produce an annual increase of more than $800 billion at current price, which is larger than a 10 percent growth five years ago.

Last year, China pursued reforms, streamlined administration and delegated power. And although economic growth slowed, the country created 13 million new jobs and registered lower unemployment rates than the year prior.

“Needless to say, the Chinese economy will continue to face substantial downward pressure in 2015,” Keqiang said, adding that instead of going for higher growth in the short term, China will opt for medium-to-high growth and a higher quality of development over the long run.

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“It must be pointed out that China is still a developing country and still has a long way to go before achieving modernization. While peace is the basic condition for China’s development, reform and opening-up along with our people’s desire for a happy life constitute the strongest impetus propelling development. The space of development in China’s rural and urban areas and various regions is enormous, and the country’s domestic demand will simply generate great potential of growth. Development at medium-to-high speed for another ten to twenty years will bring even bigger changes to China and create more development opportunities for the world,” he said.

But for the country’s economy to withstand the downward pressure and maintain the medium-to-high speed of growth and development, innovative institutions, structural reform and adopting new macro-regulation policies and developing a “more vigorous” micro economy will be key, according to Keqiang.

Encouraging mass entrepreneurship and innovation among China’s 1.3 billion people, 900-million strong workforce, and over 70 million enterprises and self-employed businesses will be one major part of the plan for generating vigor, as will transforming the “traditional engine of growth” to one that is focused on increasing the supply of public goods and services.

“China has made remarkable economic achievements, but inadequate supply of public goods and services remains a weak link in development,” Keqiang said.

The country’s capital stock on public infrastructure (in per capita terms) is just 38 percent that of Western Europe and 23 percent that of North America, and its rate of urbanization is more than 20 percentage points lower than developed countries. Moving toward upping the supply of goods and services also stands to boost domestic demand.

This year, the government will invest in building railways in central and western provinces, constructing water conservancy projects and preventing and controlling pollution, among other efforts. The country also aims to deepen its fiscal and taxation reform by reducing taxes and fees for businesses, and to take new steps toward supporting small and medium-sized enterprises (SMEs).

In addition, China will speed up reform of its pricing system, substantially reduce the types of items for which the government sets prices and “liberate price regulation to the maximum extent possible,” Keqiang said.

“Admittedly, the world today is by no means trouble-free. Regional hotspots, local conflicts and terrorist attacks continue to flare up, posing immediate threats to humanity. Global economic recovery lacks speed and momentum. Major economies are performing unevenly. Commodity prices are going through frequent fluctuations. And signs of deflation have made the situation even worse,” Keqiang said at the start of his address.

However, he said in closing, “What is important now for China is to adapt to the new normal. China will maintain medium-to-high speed of growth, keep a proper balance between steady growth and structural adjustment, and push forward reform with great courage and determination.”

He added, “As long as we succeed in doing so, the Chinese economy will successfully overcome the “middle-income trap” and move ahead along the path of sustainable and sound development. This will in turn bring greater opportunities to the world economy.”