China Center for International Economic Exchanges

Transforming China’s Economic Development Mode: Opportunities and Challenges
Date:Dec 17,2010

--Speech at the Hong Kong High-End Economic Forum & 3rd Overseas Chinese Entrepreneurs Forum

By Mr. Zeng Peiyan, Chairman of China Center for International Economic Exchanges

Hong Kong, China

November 17th, 2010


Dear guests, friends, ladies and gentlemen,

Good morning to you all!

The Hong Kong High-End Economic Forum & 3rd Overseas Chinese Entrepreneurs Forum, which are jointly hosted by All China Federation of Returned Overseas Chinese and relevant Hong Kong associations, open ceremoniously today here in Hong Kong. I am very pleased to have come from early winter Beijing to prime autumn Hong Kong to attend this Forum. I would like to congratulate on the opening of the Forum and express my sincere greetings and best wishes to all the overseas Chinese entrepreneurs from Hong Kong and around the world.    

At the Fifth Plenum of the 17th Central Committee of the Communist Party of China (CPC) held last month in Beijing, the CPC Central Committee’s Proposal for Formulating the 12th Five-Year Program for China’s Economic and Social Development was adopted, which describes the layout plan for China’s economic and social development in the next five years. One month later, we gather here to discuss ways and measures of transforming China’s economic development mode under the theme of Transforming China’s Economic Development Mode: Challenges and Opportunities, this will undoubtedly have great significance.  

Next, I would like to share with you my personal views on the status quo and trend of China’s economic development, the opportunities and challenges facing Hong Kong in its development and other issues which many of you are concerned with.

First of all, China has already become the fastest-growing emerging economy.

Since the international financial crisis erupted two years ago, we have been through a journey which is full of ups and downs, and faced with unprecedented challenges. The Chinese government effectively implemented the stimulus package to boost domestic demand and promote economic growth, kept forging ahead despite of all the difficulties and challenges, made China’s economic growth leading the world. Last year, China maintained a growth rate of 9.1% and it has continued to move in the right direction expected from the macroeconomic control this year. The GDP of the first three quarters saw a year-on-year growth of 10.6%, and an annual growth of 10% is expected to be achieved. Consumer prices saw a year-on-year increase of 2.9% and the annual rate is expected to be higher than 3%. Comparing with the same period of last year, the total fixed asset investments for the first three quarters rose by 24%, while the total retail sales of consumer goods increased by more than18%, and the gross export rose by 34%. The total import and export amount from January to October has already surpassed last year’s total. Also, it is noteworthy that increase in import is much faster than export as China’s economy develops. For instance, the total import for the first three quarters increased by 42.4% on a year-on-year basis, which is over 8 percentage points higher than the growth of export. This implies a strong domestic demand and China has made remarkable contribution to the recovery of the world economy.  

The G20 Summit and APEC Economic Leaders Meeting were just concluded a few days ago. Everyone is very concerned with America’s new round of quantitative easing monetary policy and China’s RMB exchange rate. The quantitative easing of 600 billion USD launched by the US Federal Reserves caused widespread concerns around the world. Presently, the world is at a very critical stage of dealing with the international financial crisis and thus, such monetary policy is not so good for the US and other countries. Moreover, this policy is likely to result in further depreciation of the US Dollar, price increases of oil and other international commodities, shock to the emerging economies caused by influx of hot money, forced shrinkage in value of other nations’ dollar-denominated assets. These will trigger foreign exchange intervention in other countries and bring uncertainties to the world economic development. As a major reserve currency issuing country, the US should play a responsible role in stabilizing the international financial market.      

In terms of the RMB exchange rate, my view is that RMB appreciation will neither resolve the world economic imbalance nor can it serve as a panacea for resolving other nations’ economic problems. China’s trade surplus with the US is mainly due to the economic structure in the two nations, even the structure of international trade. Foreign-funded enterprises account for 55.3% in China’s export trade, plus, the share of processing trade in its total foreign trade is as high as 42%. Basically, the goods that China exports to the US are the ones that have been no longer produced by the US itself. RMB has appreciated by 25% against the dollar since China reformed its foreign exchange rate formation mechanism in July, 2005. The US trade deficit with China, however, has continued to increase after that. In order to walk out of the shadow of the international financial crisis, all the countries need to fully cooperate with one another, including the establishment of the exchange rate coordination mechanism. China will unswervingly advance the RMB exchange rate formation mechanism reform, gradually strengthen the flexibility of the RMB exchange rate and maintain basic stability of the RMB exchange rate on the basis of a reasonable and balanced level. This is not only beneficial to the steady development of China’s economy, but also in the interest of every country in the world, including China.                 

At present, the world economy has shown a trend of slow recovery, but the road toward complete recovery will be full of twists and turns. The economic growth is rather unbalanced across different nations. The question of whether China’s economy could maintain steady and relatively rapid growth has aroused widespread attention at home and abroad. It is alleged that China’s economic growth will decline, or have severe inflation, due to such factors as the restrictions of labor costs, environmental resources, investment movement to overseas and excessive liquidity. Nonetheless, I do not think so. China now has a relatively strong economic strength and large room for adjustment and significant increase of total economic output. The foreign reserve has reached 2.65 trillion US Dollar. Besides, China is in strong fiscal condition, for example, we have had an average annual increase of 19.6% in fiscal revenue over the past ten years. We also have great financial stability, adequate fund as well as a low rate of non-performing loans. The rapid development of industrialization and urbanization imply huge potential in market demand. Labor, capital, technology and other production factors have comprehensive advantage. The dynamics of systems has been enhanced greatly, and the government’s ability of regulating macroeconomy and coping with complicated situations has also been improved considerably. All these are fundamental factors to ensure further economic development in China. Confucius once said: “The wise are not puzzled, the benevolent are not worried and the brave are not afraid.” One is not worried and afraid if he is not puzzled. We have both the confidence and conditions to maintain the good momentum of China’s economic development in the long term.        

Everything has two aspects that complement each other. Apparently, the international financial crisis’ impact on China is a shock to China’s economic growth rate but in fact, it is a shock to China’s economic development mode. Problems such as imbalance, discordance and unsustainability are still outstanding in China’s development process, and they can be found mainly in the imbalanced relationship between investment and consumption, imbalanced regional development, unreasonable industrial structure, higher restriction of the resources environment and weak ability of conducting self-innovation. From an international viewpoint, the global economic growth mode based on excessive consumption in developed countries is not sustainable, protectionism is rising, and climate change and low-carbon emissions have become global problems. Therefore, we are under lot of pressure to boost domestic demand, improve added value on export and develop green economies. The transformation of the economic development mode has become an urgent strategic choice for China’s economic development. Against such background, the Proposal for Formulating the 12th Five-Year Program emerged, which aims to address these issues with well-defined objectives.      

The 12th Five-Year Program period is a crucial stage for China’s economic development. The development of the next five years will lay a solid foundation for building a moderately prosperous society. The main line of China’s economic development is to speed up the transformation of its economic development mode, set scientific development as the theme, and improve the comprehensiveness, harmony and sustainability in the development process, so as to realize fast and sound development of our economic society. In order to achieve that, I understand that we need to grasp the following six key words.

The first key word is development. China is still a developing country, and its GDP per capita is merely close to 4000 US dollars, which ranks 100th approximately among 181 countries and regions. Based on the standard of the World Bank, China still has more than 100 million people who live in poverty. Plus, the number of job-seekers in cities and towns increases by 11 million every year, and more than 150 million superfluous rural labors need to transfer their employment. Therefore, development is still the key for solving all China’s issues, which is why we need to continue to maintain a stable and relatively fast economic development in the next five years. Speaking of development, it is not only about growth, but also the simultaneous improvement of quality and quantity, as well as the all-around progress of our economic society. We should make boosting domestic demand especially domestic consumer demand, a fundamental standing point of the economic development, in order to form a new pattern in which the economic growth is driven by coordinated domestic and external demand.      

The second key word is balance, mainly to solve the issue of imbalanced development. The disparity across different regions and between urban and rural areas continues to widen. For example, the GDP per capita in Jiangsu province of the Eastern region is 4.3 times higher than that of Gui Zhou province of the Western region. The national average income of urban households is 3.3 times higher than peasants living in the rural area. The imbalanced development is not only the challenge facing China, but also the potential for China’s development. We will accelerate development in rural areas and keep improving peasant’s income and consumption level, according to the requirement of coordinated and harmonious social development in urban and rural areas. Moreover, we should speed up development in the middle and western regions, promote industrial transfer and nurture new economic growth pole. In the Mainland of China, the Wuhan City Circle, Central Plains Economic Zone, Chengdu-Chongqing region, Guangzhong region and other new regions of economic growth will be formed to expand economic development.    

The third key word is reform. Reform and innovation are the fundamental vitality and momentum of China’s development. China’s reform has entered a tough period and its transformation of economic development mode is facing structural and mechanistic problems. Thus, we need greater determination and courage to promote comprehensive reform in all areas, perfect the socialist market economy system, and put our economic society to the track of scientific development. Moreover, we need to accelerate industrial restructuring and upgrading according to the principle of building an innovative nation. We should develop strategic emerging industries and high-tech industry, increase R & D investment in enterprises, so as to improve the technological content of China’s products and its international competitiveness, produce more original products to improve the standard and quality of “Made in China” products.         

The fourth key word is green-focused. China’s extensive-growth mode has not been reversed radically, in which China paid a big price such as excessive consumption of resources, severe pollution and so on. The contradiction between economic development and resource environment has been rather prominent. Consequently, we have set a binding target of emissions reduction and energy saving, which aims to cut the carbon dioxide emissions per unit of GDP by 40%-45% by 2020 from the 2005 level, and  increase the share of non-fossil fuels in primary energy consumption to around 15% by 2020. This is not only necessary for the transformation of economic development mode, but also helpful for exploring new areas of development and growth potential. In order to achieve those goals, we are required to strengthen the ecological construction and environment conservation, develop low-carbon and recycling economy while develop our economy. Furthermore, we should develop new energy, increase forest carbon sink considerably, and deal with climate change in a proactive manner to build a resource-saving and environment-friendly society.             

The fifth key word is opening-up. China’s opening-up has reached a relatively high level, its total import-export accounts for 60% of GDP, while the average import tariff has decreased to 9.8%. There has been more and more types of goods which enjoy mutual zero-tariff after China signed free trade agreement with some ASEAN nations and other regions. We adhere to the opening strategy of mutual benefit and win-win result, set promoting balance of international payment as an important task of macro-control and promote coordinated development of foreign capital utilization and overseas investment. Meanwhile, we also emphasize on creating a fair and competitive environment for foreign investors. In the past, we gave “super national treatment” to foreign investors in order to attract FDI. However, we will start to treat foreign-funded and Chinese enterprises equally, give them the same treatment in terms of market access, government procurement and intellectual property protection. We do not and will not discriminate foreign-funded companies in any way. In the first three quarters this year, China has approved the registration of more than 19,000 foreign-funded enterprises and has used foreign fund of 74.34 billion USD, an increased of 16.6% from the previous year. This shows that foreign investors are optimistic about China’s prospects and have confidence in China’s economic development.                  

The sixth key word is harmony. National prosperity depends on social harmony, people’s wealth and safety. The economic growth we pursue is inclusive in nature, which will make all the people better off through economic development. Presently, China is in a stage where rapid economic development and the transformation of economic development mode are taking place, and the conflict is getting obvious. China is a country with frequent natural disasters. As a result, we should pay particular attention to safeguarding and improving people’s livelihood during the development process and to accelerate the development of social undertakings. We should resolve issues which concern the people, such as income distribution, employment, social security, education, healthcare, housing, disaster prevention and alleviation. Apart from that, we should maintain a fair, just and harmonious society, promote free and comprehensive development of the people to create a sound environment for economic development.          

Thirdly, the development in the Mainland of China will drive more prosperity in Hong Kong.  

Since its return to China, with support from the central government and the Mainland, the leadership of the two Chief Executives, Tung Chee-hwa and Donald Tsang, as well as the unremitting efforts of the local people and its government, Hong Kong SAR has overcome severe shock caused by the Asian financial crisis and maintained healthy economic development. I visited Hong Kong six years ago and have noticed many exciting and encouraging changes this time.

What is the implication of the transformation of economic development mode in the Mainland to Hong Kong? This is a question which concerns all of us. Undoubtedly, Hong Kong is also faced with the same challenge of transforming and upgrading its economic development mode during its economic development. We should notice that the transformation of economic development in the Mainland will be beneficial to Hong Kong’s economic transformation. As the Mainland restructures and upgrades its economy, extends its manufacturing to high-end products, correspondingly, it will have higher and higher demand for high value-added services like finance, business, logistics, information, high-tech, energy-saving and carbon-emissions and consulting. At the same time, the upgrading of consumer consumption will also accelerate Hong Kong’s tourism and retail industries. All these will help to further economic development in Hong Kong. As an international free port and metropolis, Hong Kong is backed by the Mainland and facing the world, and has a locational advantage. The highly-liberalized economy, extensive connection to the international market, effective administration and large number of successful entrepreneurs and elites from various fields have made Hong Kong’s position and role irreplaceable. Hong Kong and the Mainland’s economies are complementary, in particular, the further cooperation among Guang Dong, Hong Kong and Macau will make it one of the most competitive metropolitan region. Despite of all the challenges Hong Kong will be facing in its future development, it will have great historical opportunities. Historically, Hong Kong has successfully transformed its economic development mode for many times, it will definitely be able to do so again. Hong Kong’s prospect is undoubtedly promising and we have every confidence in its future.             

The central government’s proposal of making Shanghai an international financial center, an international shipping center and a metropolis, has caused quite a stir in Hong Kong. Many people are very skeptical about whether Hong Kong’s status will decline, and whether Hong Kong will be marginalized? In my view, despite of the competition between Hong Kong and Shanghai, they have large potential for mutual cooperation, complementation, promotion and mutual benefit and a win-win result, thanks to their different geographical locations, economic structure and stages of development. With its massive land, China can surely accommodate both Shanghai and Hong Kong. Besides, Hong Kong and other cites including Shanghai, can add radiance and beauty to each other and achieve complementary development. Some people also worry about the impact on Hong Kong’s role as a logistical transitional hub, caused by the direct, two-way mail, transport and trade links, and the implementation of the economic cooperation framework agreement between the Mainland and Taiwan. Generally speaking, the economic tie between the Mainland, Taiwan and Hong Kong will become closer and closer, the “cake” will also become bigger and bigger and hence, the future growth will make every party better off. Among the Mainland, Taiwan and Hong Kong, Hong Kong’s role as an international trade and freight transitional hub will not be marginalized. In contrast, it will gain new potential for development.             

The central government will continue to support Hong Kong’s economic development, improve local people’s livelihood and implement various policies and measures which are conducive to Hong Kong’s economic development. We will continuously improve and enrich the measures aimed to build a closer economic and trade relation between the Mainland and Hong Kong. The CPC Central Committee’s Program for Formulating the 12th “Five-Year” Program states clearly that they will support Hong Kong to strengthen and improve its roles as an international financial center, international shipping and trade center. As the RMB internationalization process is accelerating, to develop RMB cross-boarder trade settlement and RMB-denominated bond market in Hong Kong will help it to become an offshore RMB center, and play a unique role in the national financial opening-up strategy. We strongly believe that Hong Kong will definitely gain new and greater development as the Mainland develops.          

Over the years, people in Hong Kong and overseas compatriots have scored extraordinary achievements through hard work and unremitting efforts. They act locally, keep their motherland in heart and think globally. They have proactively participated in the modernization process of the Mainland for many years and made important contribution to improve China’s economic prosperity. And thus, they are the participants and contributors of the great journey of China’s reform and opening-up. The realization of the overseas Chinese entrepreneurs’ dream is dependent upon the fate of their motherland. The overseas Chinese entrepreneurs’ progress is closely linked to China’s development. China’s 12th “Five-Year” Program will provide all the people of China, including overseas Chinese entrepreneurs, with a bigger stage to play. I believe that all the overseas Chinese entrepreneurs and their motherland will breathe the same air, share the same fate and join their hearts to make new and bigger contribution to the great cause of rejuvenation of Chinese nation.           

Thank you!

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