18 August 2019
Premier Li is seeking to put his own stamp on China's economic future. Photo: Reuters
Premier Li is seeking to put his own stamp on China's economic future. Photo: Reuters

Reading the signs to see what’s really on Li’s mind

Some things changed and some remained the same but all offer clues to the thinking in Premier Li Keqiang. Li delivered his first work report as premier to the legislature Wednesday, in turn overlapping with and departing from his predecessor, Wen Jiabao. 

Li put his own stamp on reviews of the year’s economic development by referring to two economic indicators that never made appearances in Wen’s reports: power consumption and freight transport. The factors are part of the so-called Keqiang Index that also includes credit data, and together indicate whether GDP growth figures are accurate. “The main real physical indexes matched economic growth,” Li said, suggesting that the data added up. 

Clearly, Li is not a great fan of GDP, nor does he really trust GDP growth figures. In the race between reform and growth, Li leans toward structural reforms. But that doesn’t mean he has given up GDP completely. Instead, he sees more difficulties facing the Chinese economy, as can be seen in his wording about challenges.

Wen said last year that Chinese industries faced “relative” overcapacity. But Li went a step further this year to say overcapacity in some industries is severe.

Li also admitted, for the first time, that there is a dilemma with macroeconomic controls. If the government deploys any monetary and fiscal policies to intervene in the economy, the action can help achieve designated goals but also produce more and worse side effects than they were originally intended to combat.

For example, government-led investment and credit expansion can be a handy way to quickly shore up economic growth but it can also induce negative effects such as mounting government debt, severe asset bubbles and environmental damage. This leaves less room for the government to boldly go where it wants to with policy.

However, investment will continue to be a silver bullet when the economy dips below the bottom line of 7.5 percent growth. Li used the same wording as Wen when he commented on the role of investment in the government report. “Investment continues to be the key” to economic growth, he said, in an apparent attempt to dismiss suggestions that investment be rolled back.

This shows that even at the risk of negative fallout, Li will not hesitate to roll out mini stimulus measures when the economy slows too much.

But it’s not all bad for the premier — trade prospects are a brighter spot. In the report, Li declares that this year’s trade growth target is 7.5 percent. Last year’s report didn’t mention any target for trade.

Setting a target demonstrates Li’s confidence on trade, which remains an engine of GDP growth and jobs although its contribution to the economy has declined sharply. The unexpected jump in exports and overall trade could be a source of the confidence.

The economic recoveries in the United States and the European Union also bode well for Chinese exports. And given that Chinese authorities feel they have many tools to stimulate trade, the sector shouldn’t present too many worries. “We have much room to adjust [in terms of trade policies],” the premier said.

Li has a higher goal though — to boost the quality of Chinese exports. He wants them to climb the global tech ladder “from below average to above average”. He also wants to boost exports of Chinese equipment in high-speed rail and nuclear power, possibly through government-backed international cooperation.

Just as they did last year, Li and President Xi Jinping will continue to embark on global tours to promote Chinese equipment and call for links between regional economies. Last year, Li promoted Chinese equipment during trips to Eastern Europe and Southeast Asia, while Xi appealed to establish Silk Road Economic Belt, a Silk Road on the Sea and an Asian Infrastructure Bank. All these efforts aim to promote Chinese equipment and technology, a move that could partly ease overcapacity in industries such as steel and cement.

Li has two other pet topics: urbanization and internet finance.

On urbanization, he is more ambitious than his predecessor. He wants 100 million rural residents to move to the city and another 100 million in western and central areas to be covered by urbanization by turning existing counties and towns into cities. Clearly, Li still believes urbanization will be the driver of future economic growth.

Li’s reference to internet finance in his work report is an official endorsement of the sector. He is keen to use the power of internet giants to shatter the state dominance of the financial sector and force it to innovate.

– Contact the writer at [email protected]


The writer is an economic commentator. He writes mostly on business issues in Greater China.

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