Q: In recent years, China’s economy has been slowing down. The growth rate of GDP was 7.4 percent last year, the slowest in 24 years and China plans to lower the annual GDP growth target to around 7 percent this year. Many people worry about China's economic development prospects. What is your opinion on this?
A: Despite a slight slowdown, the Chinese economy is still registering positive growth figures. 30 years of rapid economic growth have completely transformed the Chinese economy – in absolute terms, a 7% growth rate today corresponds to a 10% growth rate in previous years.
China’s development prospects remain bright. Economic transformation and structural adjustment have yielded substantial results, with growth in new industries such as services, environmental protection and high-tech. The value added of the services industry has been particularly high, and Chinese demand and consumption now contributes more economic growth than investment does. Continued investment in R&D has also led to important technological progress and successful commercialization. Beyond this, rapid urbanization has boosted demand for infrastructure and business services, and important steps have been taken to open up the domestic market in a wide range of areas. Finally the ‘road and belt’ initiative and ‘go global’ strategy will be important catalysts for growth of Chinese enterprises and multinationals.
Q: In recent years, Chinese local governments have borrowed several trillion yuan through bank loans, bond markets and other financial platforms and many of these governments are under heavy debts. Many experts believe it will lead to China’s debt crisis and the collapse of China’s economy. What’s your response to this?
A: The government is fully capable of forestalling systemic and regional financial risks. Individual cases of financial risk have no bearing on this. The Chinese economy continues to operate normally, with a fairly high savings rate. Moreover, 70% of local government debts correspond to investments (with promising returns) and local financing channels are being closely regulated. Chinese banks have a high capital adequacy ratio and ample provisions. This means that despite a slight increase in the number of non-performing loans, individual cases of financial risk can be sustained. Our priority now is to raise awareness of financial risks and encourage a balanced, market-based approach to investment and financing. With this in mind, a deposit insurance system will be set up in 2015. We will also develop multi-tiered capital markets to lower the corporate leverage ratio. Together, these efforts will help ensure that financial services can better serve the real economy.
Q: The Chinese government has been unable to effectively solve the problem of insufficient domestic demand. Has Chinese Government found countermeasures?
A: The Chinese government has undertaken major reforms to streamline administration and delegate more powers to local governments. This has greatly stimulated the market. Reforms to the business registration system have allowed for up to 10,000 new businesses to be registered each day and have given an important boost to entrepreneurship. More jobs have been created despite the slowdown of the Chinese economy, which clearly demonstrates the effectiveness of these reforms. Further steps will be taken in 2015 including simplifying all administrative procedures, cancelling non-administrative reviews, regulating the government review, drawing up a negative list for market access and ensuring that provincial-level governments publish their lists of powers and responsibilities. Reforms will also aim to ensure that that the law is fully respected and applied. These measures will further boost market vitality.
Q: If China genuinely sticks to the road of peaceful development, why is there need to maintain a large military spending? And even the annual increase toppled 10% in succession?
A: China is fully committed to peaceful development. Its defense policy aims only to be defensive. However, safeguarding national sovereignty and security over such a vast territory as China, with far-flung border and coast lines, can prove challenging and complex. Our defense capabilities have grown proportionately and modestly: China’s defense spending accounts for less than 1,5% of GDP, which is below the UK, Russia and the US and far below the world average of 2,6%. In per capita terms, defense spending in China is 5 times lower than in Japan, 9 times lower than in the UK, and 22 times lower than in America. In addition, a large part of defense spending in China goes towards promoting the welfare of military personnel. China will continue to dedicate its defense budget to the safeguard of its national sovereignty and security interests.
Q: Many European companies called on China to modify the new provisions of the draft anti-terrorism law which relates to network and information security. They claim that it would interfere with their normal businesses, harm their interests. Some companies have even begun to consider withdrawing from China. What’s your response?
A: China formulates its anti-terrorism regulation with the aim of preventing and combating terrorism and in full respect of the law. Any new measures will be implemented under clearly-defined restrictive conditions: first, they will only be used to prevent and investigate terrorist activities, second, only public and national security authorities will be entitled to adopt these measures, and third, implementation will be subject to a strict approval process.
Cyber security is a crucial concern on a global level. Enhancing the security of information technology products is an important and common measure to ensure national cyber security. To this end, many countries have formulated laws and regulations to securely manage the internet. China is no exception. Requirements for technology-intensive enterprises to disclose their encryption keys have existed for a long time in the US and in the UK. With a total of nearly 700 million users, China’s internet is open, rapidly expanding, and requires regulation. Many countries, like China, have specific domestic laws and regulations on the security of the Internet, and such laws and regulations must be followed. As long as foreign companies abide by Chinese law without jeopardizing China’s national security or the interests of consumers, their lawful rights will be guaranteed. China welcomes and supports foreign companies who seek to expand their business in China or to co-brand, co-produce and co-develop with Chinese companies.
Q: Chinese government provides subsidies for state-owned enterprises and encourages them to ‘go global’, which makes it difficult for foreign companies to compete on a fair basis. What’s your response to this?
A: The Chinese government does not provide any financial subsidies to Chinese enterprises under the ‘go global’ strategy. State-owned companies have gradually developed into share-holding companies with a separation of ownership and managerial authority. Whether in the Chinese domestic or international market, state-owned enterprises and private enterprises compete as equal market players. All enterprises have to operate independently, are responsible for their own profits and losses and shoulder the full responsibility for their operations.
China actively fulfills its WTO commitments including those under the ‘go global’ strategy. The Government streamlines approval procedures for outward investment, relaxes restrictions on foreign currencies and provides credit aid and public services such as consultation on national law, conditions and risks. The Chinese government would never provide subsidies to businesses if the provision of such subsidies would go against WTO rules.
Q: Foreign companies complain that China's investment environment continues to deteriorate and claim that China's policies towards foreign enterprises are increasingly discriminatory. There might be a ‘collective evacuation’ for foreign enterprises. What is your response?
A: Chinese policies do not discriminate against foreign enterprises and China’s investment climate is not deteriorating. On the contrary, FDI in China was the highest in the world in 2014, with 119,6 billion US dollars amid a global decline of 8%. Foreign companies operating in China, particularly in the services sector, strongly benefit from FDI. This has in fact created a new trend: by the end of 2014, 81 million foreign-funded enterprises had been approved and FDI reached 1,5 trillion US dollars. China is clearly still a hub for foreign investment.
Foreign investment plays a crucial role in the development of China’s economy and the Chinese government has been working to create a fair and transparent investment environment for foreign companies. Further steps will be taken to reform the procedures for foreign investment, including by unifying laws and regulations governing foreign and domestic investment. In addition, the government will work to explore the management model of pre-establishment national treatment plus a negative list, with a view to offering a level playing field to foreign companies and safeguarding the lawful rights and interests of investors and enterprises.
Q: European Chamber of Commerce in China claims that ‘golden times are over ’. It is getting tough for doing businesses in China and European companies are generally not optimistic about prospects. What’s your comment?
A: The European Union (EU) and its member states make up China’s fourth largest source of foreign investment. The EU has invested in 39325 projects, representing 95.29 billion US dollars, and more than 20000 enterprises have been established in China (figures from October 2014). A survey conducted by the European Chamber of Commerce in China last year concludes that China remains crucial for the global revenue of European companies and that the Chinese business environment is favorable for European companies: indeed, Chinese revenue comprised more than 10% of global revenue for half of the companies surveyed, representing an increase of 50% since 2009, 63% of enterprises made net profit growth, 48% increased number of employees, 57% plan to expand their current China operations and 84% of new companies entering the Chinese market feel optimistic about growth. China will continue to welcome European companies. It will improve foreign investment laws and regulations, strengthen IPR protection, increase communication with foreign companies and find solutions to the various problems encountered by EU companies.
Q: China's economic success is remarkable, but not everyone can benefit from it. How will China deal with this situation?
A: Enriching people is key to building a country. In China, we continue to put people first and aim to increase quality of life through social equity, justice, harmony and progress. More than 70% of government spending in 2014 aimed to ensure standards of living. We successfully created 13,22 million new urban jobs, reduced the number of people living in poverty in rural areas by 12,32 million and provided access for over 66 million people to safe drinking water. Per capita disposable personal income increased by 8% in real terms nationwide and over 95% of the population was covered by medical insurance. The Chinese government will continue to make sustained efforts to improve living standards in 2015. We will work hard to promote business development, increase employment, strengthen social security and increase individual income. We will also work to further improve the quality of and access to education, improve basic medical and healthcare systems and seek to innovate in social governance.