Premier Li Keqiang revealed some of his new thinking during the Summer Davos meeting in Tianjin last week, which will help predict the policy trend and guide foreign investors on their China strategy. At least three things deserve attention.
1) Selective foreign investment
Although Li reassured foreign executives that China’s door is always open, it is clear that not all foreign investors can win big in China, which is increasingly selective about the quality of foreign investment.
Li particularly highlighted creativity, “high-quality” urbanization and environmental protection. This shows China will be more than glad to welcome foreign investors who can bring know-how and high technology.
Gone are the days when foreign companies made big gains simply by dominating the market and using technologies that have been out of date in their home countries.
Foreign investors need to adapt their mindset to the changing environment. If they reposition themselves and rebuild their advantages with state-of-the-art technologies and follow Chinese laws, they can easily beat most of their domestic rivals.
But investors in labor-intensive industries who rely on cheap production, labor and land costs, should probably leave China.
2) Policy change
This year, the central government has been working to balance economic growth and restructuring. Policy has swung one way or the other.
Monetary and fiscal policies were very tight in the first quarter, with Li stressing reform was the top priority.
But since the economic growth rate slowed to 7.4 percent, below the yearly target of 7.5 percent, a slew of mini stimulus measures has been launched.
Monetary stance was loosened with greater credit injection while fiscal policy became proactive with the approval of major railway, affordable housing and infrastructure projects.
In June, Li criticized local governors for not working efficiently to maintain economic growth. He also stressed that development was the top task.
It is widely expected that more stimulus and monetary loosening will be rolled out with recent monthly data pointing to a weak economy.
But what Li said during the Tianjin meeting showed that he is once again leaning toward structural reform.
He urged the audience to look ahead and look at the bigger picture.
“Partial” and “shortsighted” views are not preferred when assessing the economic situation, he said, apparently referring to comments that the world’s second largest economy was heading toward a steeper slowdown, or even a hard landing amid sluggish August data.
His confidence mostly came from rosy labor indicators.
In his meeting with foreign executives, he said the outside world was concerned over China’s economic growth but what the Chinese government most cared about was employment.
Li said urban new jobs were nearly 10 million by the end of August, almost matching the yearly target.
He used to believe a certain amount of growth was needed to ensure employment but in recent months, he has been convinced that economic restructuring will help create a lot of jobs even if the economy slows down.
Li’s eagerness to maintain economic growth was not as great as it was in June.
3) Areas of focus
It’s obvious Li has three major areas of focus in the coming months, if not years – small and micro businesses, market regulation and fairness and financial reform.
Small and micro companies accounted for more than 95 percent of China’s urban employment.
Li also believes these companies helped create most of the new jobs, greatly contributing to the stability of the labor market.
He is keen to release the full potential of these companies by loosening administrative management, saying simpler government approval procedures and fewer restrictions are key to the prosperity of these enterprises.
Trade clearance procedures including product checks will be simplified and made faster.
As for market fairness, Li made it clear that this is a major responsibility of the government.
This means the government, ideally, will reduce intervention in the normal market practice but focus on ensuring a fair market for all participants to compete equally.
Apparently, the recent crackdown on monopolies is a major part of that responsibility.
In this sense, it is expected that more antitrust investigations will be launched and tougher penalties for IPR violators will be be rolled out soon.
Another focus will be financial reform. New measures may include allowing more private companies to set up banks, advancing deposit rate reform and regulating internet financial institutions, particularly peer-to-peer loan websites.
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