Friday, 04 April 2014 14:59

China's Reforms: National People's Congress Annual Meeting

Speech by Minister Counsellor Zhou Xiaoming, Head of Economic and Commercial, Chinese Embassy in the UK, delivered on March 27, 2014 at the 48 Group Club's Young Icebreakers

Ladies and Gentlemen,
When I was jogging in Hyde Park early this morning, I was struck by a riot of colour. Daffodils, oriental cherries and many other trees were in full blossom. The beautiful sight reminded me once again that the spring was already here. A spring of another kind, the Spring of Cooperation, has also descended on us. 2014 has made a great start with the commercial ties between our two countries flourishing.

Since the beginning of this year, there have been 2 waves of Chinese visitors looking for investment opportunities in Britain. Deals involving over £2 billion have been struck. Following an all time high in 2013, the two-way trade in the first two months jumped 18% year on year, compared to a 3.8% increase in China's trade with the rest of the world.

Early this month, the annual meeting of the China's National People's Congress approved the country's reform and development plan for 2014. The plan has three objectives: ensure a steady economic growth; expedite economic structuring, and further reforms. The growth target for 2014 was set at about 7.5%, the same rate as the previous two years. Is 7.5% a magic number?

The rate is needed to keep our young men and women employed. Every year, more than 10 million young people, including 7 million university graduates, expect to join the work force. It is estimated that one percentage increase in China's gross national product will generate over 1 million jobs. The Government has set upon itself a target of at least 10 million new jobs for this year. The job target necessitates the economy to expand around 7%.

But 7.5% is also considered to be achievable. Some commentators have raised doubts about the target. Admittedly, the Chinese economy is under strong downward pressure. Restructuring the economy means eliminating excess capacity. As such, it will negatively impact the economic growth. Local government and company debt constitutes a potential risk. And the world economic growth is far from certain. Despite the challenges, the Chinese Government is confident that the goal is going to be met. The country has a huge growth potential. The rural-urban migration of over 10 million people will provide a powerful driver for the economy. And there is "reform dividend". The reforms will set free torrents of creativity of hundreds of millions of individuals, propelling the economy.

The NPC also calls for speeding up of economic restructuring to produce an "updated edition" of the Chinese economy, with an emphasis on quality and productivity improvement and product upgrading. Growth is expected to come mainly from innovations rather than increases of inputs such as labour, capital and raw materials. In the international division of labor, China intends to move up the value chain. It is no longer feasible and desirable to primarily export lower and middle -end products. Advanced manufacturing is seen as the way to go. In addition the NPC also called for the service sector to be nourished. Last year for the first time in history, services outweighed manufacturing as a percentage of GDP. The trend is expected to continue.

Furthermore as an important part of economic restructuring, excess capacity is to be reduced. A large number of steel mills and cement plants will be closed down. On the other hand, innovation, regarded as the key to economic restructuring, will be strongly encouraged. China's R&D expenditures as a percentage of GDP have been on the increase for some years. It exceeded that of the EU last year. China will continue to encourage companies to set up R&D centres and beep up the protection of IPA.

The year 2014 is going to be billed as the Year of Reform. Reform is seen as the only way forward for China. It has been given the top priority by the Government. The Chinese Government is highly committed to comprehensive reform, determined to make things happen. The reform is being carried out in earnest. Shall I give you a little flavour of the reforms in China?

The Government is determined to cut down on red tape by simplifying administration and reducing regulatory barriers. It plans to eliminate one third of regulatory approvals by 2017. Last year the central government annulled or delegated to local governments over 400 approvals. 200 more approvals are planned to be done with. The purpose is to limit government power and give a free hand to the market so that the "invisible hand" can play a decisive role in resource allocation.

Financial Reform:
China will develop private banking. Three such banks have recently been approved. Interest rates on deposits will increasingly be determined by the market forces. To expedite the process of internationalization of RMB, China's central bank decided that as of March 17, the daily trading band of RMB with the US dollar would be increased from 1% to 2%. More and more, exchange rates will be determined by the supply and demand. China is also promoting the convertibility of RMB under the capital account.

Market access:
More sectors will be opened to non-state sectors. Those include finance, oil and gas, electricity, railway, telecommunications, resource development and utilities. Non-state sectors will be also encouraged to invest in health care, elderly care and tourism. The Government intends to provide more opportunities to all investors, including foreign investors, to showcase themselves on the huge stage of China and thrive in the fertile land of the Chinese economy.

Opening up to outside world:
China plans to improve access to the service sector for foreign investors. The bar for foreign banks to set up subsidiaries will be lowered, making it easier for them to gain a stronghold in China. As an important initiative of opening wider to the outside world, the Government decided to set up the Shanghai Free Trade Zoon. The zoon is intended to try out international norms before they are introduced nation-wide if they are proven successful. For example, with regard to foreign investment, the zoon has adopted a negative list that presumes sectors are open to foreign investors unless specifically excluded.

The implementation of the 2014 annual plan will create enormous business opportunities. For example, China is making a major effort to protect the environment by conserving energy, reducing carbon emission and developing energy-efficient industries. It is estimated that a total of £ 500 billion will be spent on environmental protection in the next five years. In the area of urbanization, opportunities also abound. According to the Government plan, in the next six years, 100 million people will emigrate to cities and towns from the countryside. Another 100 million people in cities will have their inadequate dwellings upgraded, and a further 100 million people will settle in new towns in China's western and central regions. Imagine the business opportunities in urban planning, infrastructure, housing, health and education these three grand schemes will bring about. China desires to share the 4 opportunities with the rest of the world in the spirit of cooperation and mutual benefit. It welcomes foreign businesses to contribute to China's economic development and at the same time-share the fruit of its economic development.

The Chinese and the British economies are complementary. They have a lot to offer to each other. They are well positioned to become partners for growth, and partners for prosperity. UK companies are welcome to grow with us and be prosperous. Where are the opportunities for UK companies?

There is huge potential for Britain to increase its exports to China

UK exports to China have doubled in the past four years, but its share in China's imports has not risen. It has stagnated at 0.9%, compared to South Korea's 12% and Japan's 11%. There are success stories like Range Rover, Bentley and Burberry. But UK exporters as a whole have struggled to keep pace with China's fast expanding imports. China imports $ 2 trillion worth of goods every year, more than four times as much as the UK total annual exports. China does not only need energy and minerals. It also imports large amount of consumer goods.

The market for capital goods and cutting -edge technology and processes is also huge, amounting to more than one third of China's total imports. If UK products were better geared to the Chinese market, they would quickly be snatched up. For example, the UK would well become a major supplier of components and parts to China's aerospace and automobile industries, as it has been able to do for European and the US.

The roads in China are not paved with gold, but there are golden opportunities in the country. About two thirds of the US businesses in China reported profits last year. In case of the UK, I have never heard of a single major UK company pulling out of China in the past four years. Numerous investment opportunities exist in many areas: education, health care, clean energy, biomedicine, advanced engineering and manufacturing, to mention just a few. For those of you who are in manufacturing with cutting-technology or world class products, my advice would be: if you plan an expansion, consider China as the location. Be setting up your plant in China, you will be able to take advantage of China's low-cost manufacturing and huge market and proximity to many of the dynamic economies in Asia. When you combine your own strengths with that of China, you will place yourself in an unrivalled position.

We will be seeing more Chinese investment into the UK. Britain has become a major destination for China's outbound investment. There are opportunities to work with Chinese companies. When you ponder, it would be advisable to take a Chinese company on board. The experience of Dynex in Lincoln, PTG in Manchester, London Taxi Company in Coventry and Sunseeker in Poole have all proven to be very positive for the local companies. The Chinese companies have not only provided the badly needed financing. They have also given the UK companies their resources: R&D capability, overseas marketing network and the access to the Chinese market. All this has enabled the local companies to grow and prosper.

According to Daily Telegraph, some scientists have predicted that 2014 is likely to become the warmest year on record. Higher temperature may not be to everybody's liking. To some of us, it may mean global warming. But I would presume that warmer relationships with better commercial results between our two countries is the on the wish-list of all of us here tonight. Let us hope and work for it.

Note: This article was first published by The 48 Group Club. Original link here