All the signs point to a shift from idealism to realism in the mind of Premier Li Keqiang. Li’s recent remarks and policies from the State Council he heads indicate that he has pulled back significantly from his pro-reform stand, succumbing to the realities of a slowed economy and strong resistance from vested interest groups.
The signs have emerged one after another in recent weeks. First, late last month, he rapped some local governments and central government officials over the knuckles for inaction. He was unhappy that they had not implemented mini-stimulus policies introduced at the end of the first quarter. It was the first time in his year or so as premier that he had openly criticized officials for not doing a good job to boost economic growth.
Just a few months ago, when some provincial governors complained of mounting pressure from a slowing economy, the premier insisted that things were not too bad and an economic growth rate of slightly lower than 7.5 percent was tolerable. He’d even suggested at internal meetings that 7.2 percent was his bottom line. But the pro-reform premier, who once seemed to value economic restructuring over growth, appears to have wavered and now looks more concerned about growth.
On June 6, at another meeting with some other provincial governors, he lost his temper again. He said they were not doing enough to maintain growth and had failed to faithfully implement the policies rolled out by the central government. Li spelled out that “development is the top task” and that local governments are obliged to achieve major social and economic goals. It was the first time he had put development, i.e. economic growth, so high on the agenda. The talk previously had been all about reform.
More than that, Li seems to have given up his 7.2 percent bottom line, his red line for maintaining employment. “I can promise everyone honestly and solemnly there won’t be a hard landing. We will not resort to strong stimulus, but rather smart and targeted regulation to ensure that major economic indicators, including the 7.5 percent growth target, remain and ensure a sustained rate in the future,” he said in London earlier this month.
One remarkable change was his reference to a 7.5 percent growth target instead of a goal of “about 7.5 percent” that he has used in the past. This is a strong indication of his growing gravity toward economic growth.
Li’s mind changed after the property market cooled and the government frugality campaign chilled consumption and spending. In its wake, he had to resort to the old ways of keeping the economic engine ticking over: injecting liquidity to make sure GDP rises to what he calls a “reasonable range”. Since economic growth slowed to 7.4 percent in the first quarter, he has twice selectively cut the required reserve ratios for lenders.
Reforms have not paid enough dividends to fuel the economy and China is feeling the pain of moving from manufacturing to consumption so Li now has to step back a bit from his previous idealism to face reality. Like it or lump it, credit and investment are the two quick and effective ways for China to maintain growth.
With Li’s growing concern over growth now obvious, the next things to watch for are whether he will ease off on reforms and to what extent he will focus on growth.
Li still insists on pursuing targeted and measured approaches to stimulate the economy so it’s clear that he doesn’t want to go back down the same old path of massive stimulus. He may have bowed to reality and put his finger on the growth button for the time being, but he may also think of accelerating reform after the economy stabilizes.
Major economic data for May pointed to a recovery in growth and based on the improved prospects, Li’s chance to further loosen monetary policy is fading.
But this economic slowdown has has left a mark on his mind and he will not behave as the idealist as he once was. This time round he’ll put equal emphasis on reform and growth.
The writer is a Beijing-based commentator on China economic issues.
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