Wen Jiabao Answers Questions at the Opening Ceremony of the Fourth Summer Davos Forum and Entrepreneurs Workshop

2010-09-13 14:42

On September 13, 2010, Premier of the State  Council Wen Jiabao attended the opening ceremony of the fourth Summer Davos Forum and the entrepreneur workshop and answered questions of Executive Chairman of the World Economic Forum Klaus Schwab and entrepreneurs. The text of questions and answers is as follows:

Q: China’s GDP grew by 9.1% in 2009 and by 11.1% in the first half of this year. China has become one of the fastest growing economies in the world. But some people say there is gap between the growth rate of Chinese economy and the improvement of people’s living standard. What is your view on this point? How can the wealth created by China’s GDP growth better benefit the people?

A: The Chinese government is indeed concerned about the question you asked. First of all, we should recognize that people’s life is being improved gradually with the growth of the Chinese economy. From 2007 to 2009, the actual annual wage income of workers increased by nearly 12%, two percentage points higher than the GDP growth rate. The urban per capital disposable income increased by 9.1% and rural per capita net income grew by 8.2% per annum. The improvement of people’s life is obvious to all. In addition to the wage income, the secondary distribution of income, or our fiscal expenditure on social security, culture, education and healthcare of the people is scheduled to be RMB800 billion this year.

Secondly, we must realize clearly China is still a developing country and we are still in a special development stage. Therefore, we should follow the principle of “subsistence first and development second”. What we are doing today aims at improving people’s life tomorrow. It is totally necessary to increase some input in this regard.

Thirdly, we must carefully solve the problem of social fairness and justice or, to put it in another way, gradually increase two “proportions”. First is to increase the proportion of labor remuneration in the primary distribution and second is to raise the proportion of income of residents in the national income. These two proportions both reflect social fairness and justice. We should not only make the “cake” big but also distribute the “cake” fairly.

A serious problem we face now is the unfair distribution of income in the society. Some people have excessive income while a large number of people still live under the poverty line. We must take strong measures, including fiscal and tax reform as well as income distribution reform to change the unfair income distribution step by step. This serves as an important basis to promote social fairness and justice and maintain social stability.

No one can deny the huge changes in the Chinese people’s life which have taken place over more than 30 years since reform and opening up. We have lifted more than 200 million of population out of poverty. But we shall not deny the indeed relatively serious problem of gap between rich and poor despite general improvement of people’s livelihood. If wealth is controlled in the hands of the minority, the majority of people will unavoidably become poor, which will lead to social instability. We must keep a clear mind about that.

It is our ultimate target of economic development to enhance the material and cultural living standard of the entire Chinese people. And it reflects the conscience of our government to narrow down distribution gap and achieve social fairness and justice.

Q: The Chinese government successfully created the model of driving economic growth by “made in China” over the past more than 30 years. In the future, China might need to develop a new economic growth model through “created by China” and “served by China”. Could you elaborate your views on the development of this new economic development model?

A: You pointed out the key issue of changing the growth model of Chinese economy and it is also a critical issue of maintaining the balanced, coordinated and sustainable growth of the Chinese economy.

We are experiencing the stage of “made in China” which is an indispensible part of the development process. But sometimes I feel sad about that. The majority of profit of products China exports to foreign countries is taken away by foreign companies. One of the important reasons is brand. For a pair of man’s stocking, a foreign brand can sell at US$8, but the Chinese company can only get US$1. The shift from “made in China” to “created by China” requires technological innovation, application of human wisdom and capacity and change of development mode.

We will make efforts in three aspects. First of all, develop science, technology and education. Over the eight years since I became Premier three plans have been formulated, i.e. the Medium and Long-term Development Plan of Education, the Medium and Long-term Development Plan of Science and Technology and the Medium and Long-term Development Plan of Talents. These three plans form the foundation of the shift towards “created by China”.

Secondly, transform traditional industries with new and high technologies. We have many traditional industries which need to be transformed. It is a pressing task and in the process of transformation there will emerge many “created by China”, “standards of China” and “brands of China”.

Thirdly, develop strategic emerging industries. We have identified 7 strategic emerging industries, including energy conservation and environmental protection, information and high-end manufacturing, among which we have selected several priority sectors. We must try our best to build world leadership in those sectors. We have both the determination and the ability.

The development of service industry mirrors the economic structure, especially the structure of primary, secondary and tertiary industries. We must boost the development of service industry, especially the service sectors closely linked with production activities as well as the public service and financial service sectors. I’d like to draw the attention of entrepreneurs to two areas where the development of Chinese service industry enjoys huge potential. The first one is that the progress of industrialization and urbanization contains tremendous potential for the service industry and the second one is the development of public undertakings, such as education, health and medical care.

I’d like to stress one point that China’s industrialization and urbanization process will never be achieved at the cost of agriculture. The modernization of agriculture will definitely boost the development of rural service industry, which implies another big potential.

Q: The Chinese government announced the target of reducing carbon emission intensity and launched a number of policies and measures prior to the Copenhagen conference last year. However, in the first half of this year, China’s unit GDP energy consumption increased instead of decreasing, which will make it more difficult for China to achieve the target of energy conservation and emission reduction defined in the “eleventh five-year” plan. What kind of measures will the Chinese government adopt in order to achieve the target of emission reduction?

A: You just asked a question which is a big concern to me. Our unit GDP energy consumption dropped by 15.6% in the previous four years, but our plan is to reduce it by about 20% within 5 years. In the first quarter of this year, unit GDP energy consumption did not fall but went up and the reason is the blind development of some high energy consuming industries in the process of economic recovery. We have realized this issue relatively early and adopted countermeasure. Therefore, unit GDP energy consumption stopped increasing and started dropping in the first half of this year. However, we indeed face quite big difficulties of achieving the target set in the eleventh five-year plan.

We have established the target of reducing the number of high energy consuming enterprises in the latter half of this year, including eliminating small thermal power plants, small iron and steel mills and small cement plants. We will achieve this target even at the cost of slowing GDP growth rate. Of course, we have to deal with this problem realistically so as to avoid making this work a mere formality or falsification. I will give an account to the National People’s Congress and the whole world as well in March next year. I don’t know what the result will be, but I believe I will make all the possible efforts a responsible government should make.

Q: China’s population urbanization rate keeps growing and what is accompanied is the even faster land urbanization rate. Today per capita comprehensive land area in Chinese cities has reached 110-130 square meters through a series of means including the reuse of rural land, or even arable land. Some people say such a policy of accelerating urbanization rate is unsustainable. What is your response?

A: China’s urbanization rate at present is about 46%, but the land urbanization rate has actually outstripped the population urbanization rate over these years. In order to grow, some small and medium-sized cities, or even some large cities forget their realities, fall over themselves for wide roads and large squares and occupied many farmlands. The original suburb farmland and vegetable plots of many cities have disappeared, which should draw high attention from us.

I always believe agriculture is the most possible root cause if there is anything wrong with the Chinese economy. And the agricultural problem can be most probably traced back to land. Therefore, we insist the red line of 1.8 billion mu of arable land shall never be broken. It is not only critical to the subsistence of more than 1 billion of Chinese population but also affects China’s sustainable growth. Of course, the mindset of some local officials is part of the reason of this problem, but fundamentally it is an institutional problem.

There are two most important institutional problems. First the legitimate land of farmers is not effectively protected and secondly our current fiscal and tax policies, to a large extent, still allow the existence of “land finance”. That is to say, the more land you use, the more fiscal revenue you will get. As a result, land is acquired from farmers at low cost on the one hand and sold to developers at high price on the other hand. Meanwhile, broad roads and large squares demonstrate the so-called performance which is linked with the evaluation system of government officials. Therefore, we must solve those institutional problems.

Q: China’s manufacturing industry undertakes the major task of creating employment. But recently labor cost has been increasing, which might impact the competitiveness of enterprises and their products. What is the view of the Chinese government on the relationship between rising labor cost and competitiveness?

A: First of all, the cost of a certain part of Chinese laborers is relatively low and needs a rational increase. In the first half of this year, the minimum wage of 23 provinces grew by nearly 25%. But we must understand two issues. First, the major problem China faces today is the employment pressure. We have 15 million of migrant workers who need to find jobs in cities and 24 million of urban residents who remain unemployed for many years. Therefore, what they need first and foremost is job only with which can they get wage. The increase of wage should be kept within a reasonable range so that our industries are able to both maintain competitiveness and create job opportunities.

Secondly, we must understand the increase of wage should go side by side with the improvement of productivity. The increase of added value of products and the improvement of productivity are exactly the basis of workers’ wage increase. Only in this way can we establish harmonious labor relations in the society.

Q: What are the priority industries in China’s “twelfth five-year” plan? What are the sectors the Chinese government will make special efforts to promote?

A: We are formulating the “twelfth five-year” plan. During the “twelfth five-year” plan period, we will make the structure of primary, secondary and tertiary industries more reasonable. In the process of speeding up industrialization and urbanization, we will focus on strengthening agricultural development and work hard to realize agricultural modernization. In terms of the secondary industry, we especially attach importance to the sectors related with population, resources and environment and the energy conservation and environmental protection sector. We will make energy conservation and environmental protection, new-generation information technology, biology, high-end manufacturing equipment, new energy, new materials and new energy vehicles strategic emerging industries. At the same time, we will accelerate the development of modern service industry, in particular the service industry related with production activities.

Q: Recently some people point out that China’s business environment seems to be deteriorating. What is the reason for such a view? Is this because they get the wrong information or misunderstand the Chinese government’s series of recent documents on government procurement and independent innovation?

A: The growth of investment of foreign enterprises in China has proved they don’t loose confidence in China. But recently there are many voices on independent innovation, IPR and government procurement. It is not an entire misunderstanding by foreign companies but to some extent caused by ambiguity of our policy. Actually there are two key points about this question. First, all the foreign invested companies which are legally registered in China enjoy national treatment. Second, in terms of independent innovation, government procurement and IPR protection, we will treat all companies as equals. We will improve relevant laws and regulations and at the same time take an active part in the international government procurement agreement.

Q: The International Energy Agency issued a report not long ago saying that China has exceeded the US becoming the biggest energy consumer country in the world. In your speech, you have also especially mentioned China should make further efforts to enhance energy and resource efficiency. What measures will the Chinese government take in the long run in order to balance the relations between energy supply and consumption?

A: China’s energy demand grows rapidly, which is determined by China’s development stage. But we must pay high attention to it. I want to stress two issues. Firstly, we only took several decades in reaching the industrialization level which developed countries took 200 to 300 years to achieve. Secondly, our per capita energy consumption is only one fifth of that of the US and one third of that of OECD countries. When we hold this meeting in this bright hall, there are still many mountainous regions which have no access to electricity and farmers in mountainous areas have to burn wood for cooking and heating all year round. Still we must curb the development of high energy consuming industries.

China must follow the road of energy conservation. In the process of development, we must attach great importance to energy conservation and environmental protection, which is our firm basic policy. To cope with expanding energy demand, the key is to readjust economic structure and develop products beneficial to energy conservation and environmental protection and with high added value. Only in this way can our enterprises and economy step on the road of sustainable development.