China Center for International Economic Exchanges

Speech by Mr. Zeng Peiyan At the Opening Ceremony of Cross-Strait CEO Summit Annual Conference 2016
Date:Feb 20,2017    Source:CCIEE

The Cross-Strait CEO Summit Annual Conference was held in Jinmen on 6 November 2016. Mr. Zeng Peiyan, the mainland’s Co-Chairman of the Summit, addressed the opening ceremony. The following is the full text of the speech:

Co-Chairman Vincent Siew,

Vice Chairman Chiang Pin-kun,

Vice Chairman Sheng Huaren,

Distinguished Guests,

Ladies and Gentlemen,

Good Morning.

I am truly delighted to meet with you again at the beautiful Jinmen, a fairyland on the sea. This time around, the Summit is held at both Jinmen and Xiamen, a pioneering effort that shows that people on both sides of the Taiwan Strait belong to the same family. This bond of blood ties has been well told by a popular ballad of Xiamen called the Waves of Gulang Islet, which sings that “Gulang Islet looks at Taiwan Island in the distance, its waves singing day and night about the inseparable kin and kinship between the two sides.

For me, coming to Jinmen is a dream come true. Here, on behalf of the Mainland Council, I wish to extend warm congratulations on the successful convocation of the Summit and express our heartfelt thanks to the Taiwan Council, entrepreneurs from both mainland and Taiwan, Jinmen and Xiamen and all those who have made this event possible.

Thanks to our concerted efforts, the past year has seen frequent exchanges and contacts between entrepreneurs on both sides of the Strait. The two councils have done a good job, achieving satisfactory results in promoting economic cooperation across the Strait. For example, a new refining-chemical integration project was inaugurated in Gulei County of Fujian Province, and TSMC signed an agreement to build a factory in Nanjing, the construction of which is well underway. All these are important outcomes and good examples of win-win business cooperation across the Strait. Moreover, the industry advancement working groups under the Summit have organized regular exchanges of visits and practical cooperation programs between the two sides, and some major issues of concern to the Taiwan entrepreneurs have been solved thanks to the coordination of the Summit. Here, I wish to thank you all for your hard work in the past year!

Present here today are all prominent entrepreneurs from the mainland and Taiwan. I know you have been following closely the world economic situation, especially the economic situation on the mainland. Let me take this opportunity to share with you some of my observations.

Eight years after the outbreak of the financial crisis, its underlying impact is still being felt worldwide, and we have not seen the light at the end of the tunnel yet. The world economy is falling into a “low-growth trap”. For five consecutive years, the world economy grew slower than the 20-year average before the crisis and the global trade grew slower than that of GDP, and the labor productivity growth has remained sluggish.

There have been confusing macroeconomic policies: the Eurozone and Japan have adopted negative interest rates while the US Fed has been vacillating as to whether to raise interest rates or not. The problem of uneven economic development has become more pronounced, the GDP growth rates of emerging economies have slid for five years running, and seven of the 10 ASEAN countries have suffered economic slowdown. While globalization is facing head winds and the WTO Doha round negotiations, TPP and TTIP have run into snags, populism and protectionism have been on the rise in some countries. The unconcluded US presidential election has added to the uncertainties of the world economy.

Against the background of faltering growth of the global economy, the mainland’s economy is also under downward pressure with moderate decline in its growth rate. For quite some time, we tried to boost economic growth mainly on the supply side, which worked well when there was still room to increase demand for traditional production capacity. But, as the economy enters the new normal and consumption structure is constantly upgraded, the balance between supply and demand has been broken with traditional production capacity approaching or reaching the ceiling. In that case, the main problem of economic development has become structural, not cyclical, and it has become impossible to achieve long-term economic rebound through short-term stimulus policies. Over the past year, acting in response to this situation, the mainland has actively adapted to the new normal and taken a series of countermeasures to promote the supply-side structural reform. They include:

First, cut overcapacity and inventory, deleverage, reduce costs and strengthen the weak areas as a priority of the supply-side structural reform. This is to improve the quality and efficiency of supply, generate new growth drivers and enhance industrial competitiveness and corporate dynamics.

To address the problem of overcapacity, we have set stringent environmental protection and energy consumption standards, and encouraged capital merging and restructuring to clear out “zombie companies” through the market. Our goal is to reduce 100-150 million tons of steel capacity and 500 million tons of coal capacity within five years.

As for the housing inventory, differentiated measures have been adopted in light of the specific market conditions of different cities. For the first- and second-tier cities where the housing markets are overheated, more stringent purchasing policies and mortgage loan conditions have been applied to prevent housing bubbles; for the third- and fourth-tier cities, actions have been taken to urbanize the rural migrant workers to reduce housing inventory as appropriate.

To address the debt problem, the local governments, with the approval of the competent authorities, are permitted to issue bonds to replace debts. This year, the market-based bank-loan-to-equity swap is introduced as part of the policy to facilitate active yet prudent deleveraging. Since the mainland has a low foreign debt ratio and a high national saving rate and the majority of its bond financing goes to the infrastructure investment, the overall debt risks are controllable.

Costs reduction effort starts with lowering systemic transaction costs with actions taken to trial the replacement of business tax with value-added tax nationwide, cancel unreasonable charges, cut social security contributions as share of personal income, and bring the energy prices to a lower level. As a result, about 300 billion RMB of taxes have been cut in the past six months.

To strengthen the weak areas, an innovation-driven development strategy has been implemented to increase human resources investment and spur the emergence of new technologies, new industries and new business models. Committed to targeted poverty alleviation, we have taken steps to develop industries with local characteristics and relocate more impoverished people living in areas with unsustainable conditions. We also work to improve the essential infrastructure and support programs to build a sound ecology. By strengthening the key sectors and weak areas, we have increased effective investment and effective supplies, thus laying a solid foundation for the long-term development of the economy.

Second, encourage the local governments to actively carry out structural adjustment according to local conditions. In the past, the unhealthy competition for a higher GDP growth rate among the local governments and the extensive development model resulted in industrial isomorphism and repetitive construction. Now, with the GDP index no longer weighing as much as before in government performance assessment, the local governments are encouraged to push forward structural adjustment in accordance of their own conditions and advantages.

Successive regional development strategies and plans have been put forward, including those for the Silk Road Economic Zone, Yangtze River Economic Zone, the Coordinated Development of Beijing, Tinajin and Hebei and the Revitalization of Northeast China, with a view to accelerating structural adjustment of the local economies.

In some coastal provinces in eastern China where the adjustment effort started earlier, cases of success stories have been recorded. To promote economic transformation and upgrade in the Pearl River Delta area, Guangdong Province has introduced a policy called “emptying the cage for new birds”, namely to move out the highly polluting, energy intensive and unprofitable industries and move in the technologically more advanced and more capital intensive industries. Shenzhen City has a head start in promoting innovation-driven development, witnessing rapid development of information and intelligent manufacturing industries. While Zhejiang Province focuses its effort on Internet economy and building towns with unique characteristics, Guizhou Province is vigorously developing big data and ecological tourism and fostering new industries with unique features and advantages. But at the same time, because of simple industrial structure and problems accumulated over time, some provinces in Northeast and inland China have had a painful time in making the adjustment and are left behind in this process.

Third, market-oriented reform has embarked on the fast track. The development of the mainland in the past three decades has shown that reform is always the key driver of economic and social development. In recent years, firmly committed to market-oriented reform, the mainland has achieved more reform dividends.

In the financial sector, progress has been made in interest rate liberalization and reform of the exchange rate formation mechanism, making the financial leverage more elastic.

In taxation, we have moved forward with the reform of replacing business tax with value-added tax, adjusted the tax sharing ratio of value-added tax, improved local taxation system and further clarified the power and expenditure responsibility of the central government and local governments.

In price reform, we have cut short the government pricing list, and moved more quickly to introduce the market-based pricing system in the energy, pharmaceutical and other key sectors. It is estimated that by 2017 most of the prices in the competitive fields will be determined by the market.

In reforming the commercial system, actions have been taken to streamline administration and delegate power to lower levels. Many items requiring administrative approval have been cancelled and the businesses registration system has been introduced that separates business permit from business license and integrates business license, organization code certificate and taxation registration certificate into one business license with one code.

As for the market access, restrictions in sectors like electricity and transport have been eased to break local barriers and industrial monopoly. The PPP model has been widely promoted and capital of all sorts is encouraged to participate in the mixed ownership reform of SOEs to create a level playing field for investment.

Fourth, make new progress in opening up. The “Belt and Road” initiative is a key measure of the mainland to open wider to the outside world, which spans more than 60 countries and regions and has won positive response from countries along the routes. Over the past more than one year, we have signed intergovernmental cooperation agreements with more than 30 countries and engaged in industrial cooperation with more than 20 countries, and a number of industrial parks and infrastructure projects in transport, energy and communication have been successfully implemented. The mainland’s trade and investment relations with countries along the routes are growing faster than with any other region, showing a strong momentum of growth.

Meanwhile, in conformity with the trend of economic globalization, we are moving forward with both the strategy of building FTAs with other countries and establishing FTZs at home. After the ROK and Australia, we also signed an FTA agreement with Canada, and negotiations on the China-US BIT, China-Japan-ROK FTA and RCEP have all made progress to differing degrees. Domestically, the trial of FTZs has expanded twice within three years, the Law on Foreign-Capital Enterprises, the Law on Chinese-Foreign Contractual Joint Ventures, the Law on Chinese-Foreign Equity Joint Ventures and the Law on the Protection of Investment of Taiwan Compatriots have been revised, and the negative list and pre-establishment national treatment will be implemented nationwide starting from 2018.

Given the measures above, the dual-surplus the mainland has long enjoyed in foreign trade and outward investment has experienced some changes. The trade surplus in the current account is falling to somewhere between 2%-3% of the GDP. With the volume of foreign direct investment remaining stable, the soaring outward direct investment of the mainland has made it a net capital exporter rather than an importer. Moreover, under the dual impact of the foreign trade and investment rebalancing effort and the RMB exchange rate reform, the long-run one-sided increase of the mainland’s foreign exchange reserve has come to an end. The RMB exchange rate that now moves in both directions has basically reflected the fundamentals of the mainland’s economy.

Fifth, combine long-term and short-term measures in macroeconomic regulation. Our macroeconomic regulation under the new normal has combined the short-term countercyclical policies and the long-term structural policies, aiming at forging a synergy of policies on both the demand and supply sides.

In devising policies, we have changed the mentality of prioritizing material gains over people’s welfare and given more prominence to the people and green and coordinated development. GDP growth rate is no longer our sole development priority. Quality performance indicators, such as the total factor productivity, employment and ecology, are given more attention.

In terms of policy tools, we have moderately strengthened fiscal policies when the marginal utility of monetary policies has decreased. The old practice of increasing leverage and taking strong stimulus measures are replaced by better targeted and more flexible regulation and supervision to bring about a more reasonable market expectation.

As for the policy measures, we rely more on the market forces to prevent mismatching of factors and distortion of price signals. The law of the stock exchange, foreign exchange and real estate markets is respected to allow them to play their due role rather than being used only as tools for ensuring growth.

Generally speaking, the trend of economic slowdown that has occurred in the mainland since 2011 has been checked to some extent. We have maintained a 6.7% GDP growth rate for the first three quarters of this year. The employment figures have been good, and inflation rate has been kept at a moderate level of 2%.

Compared with the big fluctuations in the stock exchange and foreign exchange markets last year, the financial markets have been more stable this year. Meanwhile, consumption has contributed to up to 70% of the economic growth and the tertiary industry about 60%. There is an obvious decrease in energy consumption and pollution emission per unit of GDP. Suffice it to say that the mainland’s economy has apparently leveled off for this stage with more balanced and reasonable macroeconomic indicators, and the economic structure is undergoing positive changes with markedly improved quality and efficiency. Of course, we should not be overoptimistic about the future development, as the downward pressure is still there, the inherent structural problems have not been fundamentally resolved, the increase of private investment is weak, the transition from old to new growth drivers cannot be accomplished overnight, the external environment remains sluggish, and the monetary policies of major economies are uncertain. All these have made the situation more complicated. However, the mainland is firmly committed to deepening reform and opening up and advancing structural adjustment, and has great economic potential and resilience and much leeway for further maneuver. So long as our macroeconomic policies are proper and sound, our economy will maintain a stable growth, moving toward the horizontal part of the L-shaped growth mode. Mind you, it is L in the capital letter not the small letter. Such momentum of growth is expected to continue in the mainland in the next two to three years.

Distinguished Guests,

Since 2008, the mainland and Taiwan have built a bridge for peaceful development and win-win economic cooperation on the basis of the common political foundation of upholding the 1992 Consensus and opposing “Taiwan independence”. This has effectively spurred the cross-Strait exchanges and cooperation in the economic, social and cultural fields and in social welfare, and yielded fruitful results to the benefit of the people on both sides. We have thus ushered in the most peaceful and stable period of time in cross-Strait relations and seen the largest number of policy dividends delivered since 1949. Particularly, the realization of the two-way comprehensive “three direct links” and the signing of the Economic Cooperation Framework Agreement (ECFA), like pushing through two veins in the human body, have greatly facilitated the people-to-people and trade exchanges across the Strait, bringing the compatriots on both sides closer and winning their extensive support and endorsement. As a result, the people-to-people exchanges across the Strait have been basically normalized, with more mainland tourists visiting Taiwan.

Since 20 May this year, due to reasons known to all, the common political foundation has been unilaterally damaged, leading to the suspension of the regular communications mechanism and the consultation and negotiation across the Strait. The immediate interests of the people on both sides, especially those of our Taiwan compatriots, have been hurt, casting a shadow on the peaceful development of cross-Strait relations. At present, people in various sectors in Taiwan, especially those in the industrial sectors, have all felt deeply concerned about the cross-Strait situation and the prospect of cross-Strait economic exchanges and cooperation. They aspire for improvement and development of the cross-Strait relations and continued industrial cooperation between the two sides.

In response, the mainland has stated on many occasions that the mainland’s Taiwan policy is clear and consistent and will not change with the changes in the political situation in Taiwan, and that the mainland will continue to stick to the 1992 Consensus, firmly oppose “Taiwan independence” and uphold the one China principle, and continue to promote cross-Strait exchanges and communications in all fields and support the effort of the industrial sectors on both sides to strengthen, through unofficial channels, exchanges and cooperation for common development.

I think, at the current stage, we need to do the following three things if we want to deepen the economic exchanges and cooperation across the Strait in the future:

First, seize the opportunities. In 2005, the mainland’s economic increment reached almost 600 billion USD, accounting for more than one third of the world’s total and equaling that of five years ago when the mainland’s growth rate was 10%. The mainland market is still expanding rather than shrinking. We sincerely hope that Taiwan entrepreneurs can take advantage of their geographical proximity with the mainland to explore new business opportunities presented by such initiatives as the supply-side structural reform, “Belt and Road” construction, transforming and upgrading the enterprises and promoting innovation and entrepreneurship, so as to have a better share in the mainland’s development dividends.

Second, fulfill due responsibility. Entrepreneurs are social elites who have both market and social responsibility. More importantly, it is incumbent on them to contribute to national unity and national rejuvenation. The cross-Strait relations are facing a complex and severe situation. The effort to institutionalize a cross-Strait economic cooperation mechanism has been stalled. This is by no means what the people on either side of the Strait have wished to see. Entrepreneurs across the Strait have the responsibility and obligation to take actions to maintain the peaceful development of cross-Strait relations. At the same time, we need to make better use and give greater play to the role of the unofficial communication channels like this Summit to create a favorable environment for business cooperation across the Strait.

Third, pay close attention to the youth. The youth are the hope for future development of cross-Strait relations. Without their participation and contribution, it is impossible to further deepen our economic exchanges and cooperation. We should do more to help the young people better develop themselves and carry forward the idea of “the two sides belonging to the same family and seeking peaceful development of cross-Strait relations through win-win cooperation”. All the communities on the mainland are working actively to create an enabling environment for Taiwan’s young people to do internship, work and start up businesses on the mainland. They are welcome to the mainland to pursue dreams together with the young people on the mainland and realize their value of life.

Dear Friends from the Business Communities,

China’s women volleyball team won gold medal at the Rio Olympics this summer, a great honor that all the Chinese in the world feel proud of. They have won by the spirit of fearlessness, perseverance and teamwork. This is exactly what the business communities across the Strait should demonstrate at a time when both sides have to deal with the deep adjustment of the global economy and a subtle and complicated cross-Strait political relationship. Let us meet challenges head-on and march forward hand-in-hand with greater confidence and sense of responsibility so as to contribute our bit to the common economic and social development of the two sides across the Strait.


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