Premier stresses need to stabilize growth

Premier Wen Jiabao at the 6th Summer Davos Forum in Tianjin. [Photo/China Daily]

Q+A | Wen Jiabao

Editor's Note: Premier Wen Jiabao answered questions at the opening ceremony of the 6th Summer Davos Forum and met business representatives in Tianjin on Tuesday. The following is a translation of Premier Wen's answers filed by the Xinhua News Agency:

Q: The national development program of strategic emerging industries during the 12th Five-Year Plan (2011-15) period adopted by the Chinese government calls for closer international exchanges and cooperation and a path of open innovation and internationalized development. As active participants in China's economic development, reform and opening-up, multinational companies want to participate in the development of those industries. Mr. Premier, what is the view of the Chinese government and what specific measures will it take in the near future?

Wen Jiabao: I have said on many occasions that foreign-invested enterprises established in China in accordance with the law are Chinese companies. Their products are made-in-China and their creation is Chinese creation. Foreign-invested enterprises in China should enjoy a fair, transparent and equal competition environment and we give them national treatment.

To develop strategic emerging industries is an important measure we have taken to meet both China's immediate and long-term needs. In developing those industries, we must be open to the outside world. We need to attract the participation of foreign companies, in particular their technology and talent. I wish to state in a serious manner that foreign-invested enterprises, when participating in the development of strategic emerging industries in China, will enjoy the same policy treatment as their Chinese counterparts.

Technology and talent are crucial to the development of strategic emerging industries and the market plays a fundamental role. Therefore, we must provide policy guidance and support to those industries. The development of strategic emerging industries is a dynamic process and we will continue to enrich and improve the related policies. Many foreign companies have advanced technologies in such fields as electric vehicles, new materials, new energy sources and bio-medicine. We must work closer with them to ensure that the economy enjoys sustainable development in the future and strategic emerging industries play a leading role.

I know many foreign companies are most concerned about IPR protection and whether they receive equal treatment in government procurement and other matters. I want to tell you that we will strengthen IPR protection and give foreign companies the same treatment in government procurement.

Q: What is China's status in today's global financial system? How does China view international financial protectionism and China's responsibilities and obligations?

Wen: China has been active in advocating and building a new international financial order. We have taken part in the coordination of international financial policies and the formulation of financial rules through various platforms. Our goal is to promote the establishment of an open, just, orderly and inclusive international financial system. In the fight against the international financial crisis, we have done what we can in keeping with our capabilities to advance the building of the international financial system. In order to promote the reform of the IMF structure and enhance the IMF's financial strength, we proposed in 2009 to increase IMF's financial resources.

And in spite of the severe European debt issue this year, we have pledged to contribute $43 billion to the IMF. We have taken measures to help the European Union emerge from the current difficulties. We know that in the final analysis, the EU has to rely on itself to resolve the debt issue, yet we have still bought bonds of EU countries and the European Stability Fund.

We are opposed to trade, investment and financial protectionism. We believe that differences and frictions in the financial field should be resolved through consultation. Only in this way can we work with unity to tide over the current difficulties. China's financial market is increasingly linked to the international financial market. We will comply with international rules and play our role as a responsible country.

Q: The European debt crisis is far from over. How do you see the outlook of the eurozone? What do you think is the biggest risk the world faces?

Wen: I have full confidence in the eurozone, yet I also have some worries. The most acute questions about the European debt issue now are whether Greece will leave the Eurozone and whether Italy and Spain will ask for and get a bailout. Three events in September have captured world attention. First, on Sept 12, the German parliament will review Germany's bailout policy on the European debt issue. Second, also on Sept 12, the Netherlands will have a general election and the result will affect the country's attitude on the European debt issue. And the third is the meeting of the European Central Bank. All these boil down to one thing, namely how to strike a balance between economic growth and fiscal austerity. Europe must find the right balance, and I believe it can.

Since the outbreak of the European debt issue, the EU, eurozone countries and the ECB have taken many active measures to tackle the problem. Implementation of those measures will be a long and arduous process. Still, I have confidence in the EU. China will firmly support EU integration and development of the eurozone. This is because we always believe that the EU, as an independent pole in the world, should and will play an important role both politically and economically. The difficulties the EU faces now are only temporary as the EU has a strong economy, a large pool of scientific and technological personnel and advanced managerial expertise.

The European debt issue has posed many new difficulties to export-oriented enterprises in China, especially those targeting the EU market. Their market share has declined and exports have slowed down. But we believe China and the EU must join hands to tide over the difficulties. In this sense, to help the EU emerge from the crisis is in the interest of the world and is to help ourselves. The downward economic pressure remains the biggest risk to the world. There are a lot of destabilizing factors and uncertainties in global economic and financial development. It is hard to tell how much longer this crisis will last. Yet in all circumstances, we must have confidence. Leaders must have confidence in their own countries. Enterprises must have confidence in the market. And the people must have confidence in consumption. Only when the whole world establishes confidence can we overcome the difficulties.

During Chancellor Merkel's visit to China, we spent much time discussing ways to strengthen cooperation in order to help resolve the European debt issue. I will soon attend the China-EU Summit in Brussels and I will further discuss with the EU leaders how to step up our cooperation.

Q: China and the United States are the two largest economies in the world. The two countries have close business ties, yet frictions have also occurred from time to time. In particular when world economic recovery is sluggish, some in the US have concerns about China's trade practices related to exchange rate and trading rules. Some blame China's manufacturing sector for the high unemployment rate in the United States. What's your view on fair trade? How do you see China-US economic relations?

Wen: The US is the biggest developed country and China the biggest developing country in the world. We have the largest and second-largest economies in the world. Cooperation between us not only involves the interests of our two countries and peoples, but also affects the whole world. Both countries stand to gain from cooperation and lose from confrontation. I believe that China and the US should have cooperation, not confrontation. China and the US are each other's biggest trading partner. According to Chinese statistics, trade between the two countries topped $446.7 billion last year. Despite the difficult situation this year, China-US trade has continued to grow. Many US companies have invested in China and most of them have made profits even in time of the financial crisis.

Here I want to emphasize that China never pursues a surplus in bilateral trade. We want to import more from the US. Frankly speaking, as there is a lack of genuine mutual trust between the two sides, the US still imposes restrictions on high-tech exports to China. Let me give you an example. Two or three decades ago, we imported a number of US Black Hawk helicopters. They were products from 40 to 50 years ago in the United States and were not highly sophisticated. We needed helicopters in the disaster relief after the Wenchuan earthquake and found that those Black Hawk helicopters were short of some components. We then asked the US to ease export control of those parts and components to China. But even such a small request was turned down by the US side.

In the recent presidential campaign, both the Democrats and Republicans said they would reject "made in China" products so as to boost employment at home, and used this as a bargain chip for winning the election. Even the US athletes wearing "made in China" clothes at the London Olympics became headlines. We feel confused about this. Yet China has exercised restraint. We never ask our consumers not to wear Nike shoes or not to buy iPads and iPhones. I hope this is only a brief episode in the campaign season.

We need to follow a sensible approach in governing a country and dealing with state-to-state relations, including business ties. For fair trade, the most important thing is to observe the universally recognized norms: the WTO rules.

As for the exchange rate, it should not be a problem either. I believe all entrepreneurs present here know this clearly. Since we launched the reform of the RMB exchange rate regime in July 2005, the RMB has appreciated by 30 percent against the US dollar, and its real effective exchange rate has appreciated 29.5 percent. I am happy to see that an article in a US newspaper a few days ago said that the RMB exchange rate should no longer be an obstacle to China-US trade. The value of RMB is basically at a balanced level and the RMB even depreciated recently at the Hong Kong NDF market.

What we need is cooperation. I proposed to President Obama in person twice in 2010 and 2011 that China and the US should engage in large-scale trade, investment and financial cooperation, and put forward a specific cooperation plan. I believe such cooperation will help the US achieve an early economic recovery and create jobs. It will also help elevate our economic cooperation to a new level and ensure its long-term, steady, sustainable development.

Q: 2012 is an extraordinary year for China. China's urbanization rate exceeded 50 percent and its urbanization process continues to move forward this year. As people's living standards rise, there is increasing stress on many resources, such as water and power. How do you see this problem? What will the Chinese government do to better address problems in the course of urbanization?

Wen: Over the past 30-plus years since reform and opening-up, China's urbanization rate has risen from 17.9 percent to today's 51.3 percent. That means, over 500 million farmers have moved into cities in this process.

Industrialization and urbanization will no doubt drive China's economic development. In pursing urbanization, we have gained experience and learned lessons. They are mainly as follows: First, we must push forward institutional reform and eliminate the discriminatory and restricting measures against farmers concerning their moving into cities and choosing jobs. Second, in such a country like China with a large population and uneven development, we must develop big, medium and small cities at the same time as well as small towns to advance urbanization. Third, while pursuing urbanization, we must not overlook agricultural modernization and the building of rural areas. We have made it clear that agricultural modernization must be advanced in parallel with industrialization and urbanization, and the building of modern rural areas must be strengthened.

China's urbanization and industrialization process will continue and this is where the enormous potential of China's economic development lies. In this process, we must pay close attention to the following: First, the current urbanization is still incomplete because many farmers living in urban areas have yet to enjoy equal treatment as the urban dwellers. We must tackle the problems concerning their employment, social security, education, housing and medical care. Second, there must be scientific planning for urban development. We should pay high attention not only to the high-rises above the ground but also the underground pipe networks. We should pursue coordinated economic and social development in urban development rather than have one leg being longer than the other. Third, we must protect the eco-environment and conserve land resources.

One or two decades ago, expanding a city or building factories may have been welcomed by the local people. However, people may now ask how they will benefit from the development, will it damage the environment and will farmland be seized? Many issues and mass incidents in China today have to do with this.

In the face of these problems, the government must embrace new ideas for governance and reform its management methods. It must keep the people fully informed in a responsible way, stay open and transparent and fully hear the people's opinions.

In China, farmers account for the majority of the population. The will of farmers must be respected. They should enjoy free mobility to and from the cities rather than be ordered to do so. I want to stress that land remains the farmers' property and provides the most important support for them. Therefore, we must protect their land property rights in accordance with the law.

When I attended the UN Conference on Sustainable Development in Rio de Janeiro last June, I answered questions from some ministers of European countries. I said to them that in developing cities in China, we must vigorously develop public transport and see to it that there will be no new slums in this process.

Q: In the first half of this year, China's small and medium-sized enterprises encountered such problems as weak demand in Europe and the US, financing difficulties and rising labor cost. What policies and measures will the Chinese government adopt to help SMEs grow better and faster?

Wen: SMEs, including mirco-enterprises, are a major source of jobs and have the strongest capacity for innovation and development. The main problems they now face are: First, they find financing inaccessible and unaffordable, and they cannot get strong financial support. Second, they face high overall costs. This includes wage costs, insurance and housing fund payments for their employees and cost of production factors. These have weighed on the competitiveness of those enterprises. The government must give them support.

There are two things that is important now: First, we will continue to carry out structural tax cuts for the SMEs - micro-enterprises in particular - to ease their burden. Second, we must level the playing field for the SMEs. We will increase financial support. Financial institutions should ensure that the SMEs get the credit they need at reasonable interest rates and cut the intermediate fees.

Q: Could you tell us how do you personally see China's economic development in the past 10 years and what expectations do you have for China's future?

Wen: China has traveled an extraordinary journey since reform and opening-up, particularly over the past decade. We have made great achievements, yet we should also recognize the difficulties and challenges. The major ones include how to sustain steady and fast economic development in the long run; how to further adjust the economic structure and make economic development more innovation-driven; how to narrow the wide income gap and achieve genuine social equity and justice; and how to promote economic transformation and put an end to excessive resources consumption and pollution. These are all problems that we face. This requires that we press ahead with institutional reform and remove the institutional barriers to our effort in shifting the growth model and adjusting the economic structure. Reform and opening-up remain the driving force for China's economic and social development. This is a bright path. We must keep forging ahead rather than fall back.

I stressed that China will still be at a stage of strategic opportunities for its development for a long time to come. This is not an unfounded argument. Our 1.3 billion people generate strong domestic demand; there is still a wide gap between urban and rural areas; the shift of our growth model calls for developing infrastructural facilities related to production and people's livelihood; development of education, culture, science and technology demands substantial input. All these show that China still enjoys big potential for development.

I don't agree with the view that after 30 years of reform and opening-up, China's growth has come to an end. We have set a lower growth rate because we want to focus on shifting the growth model and adjusting the economic structure. A banker showed me two photos not long ago. One was the subway map of a large foreign city which is as dense as a cobweb and the other was the subway map of Beijing which is quite sparse. If our capital is like this, other Chinese cities could be no better.

I've just come back from the earthquake stricken area of Zhaotong in Yunnan province. The affected areas bordering Guizhou province are poor areas inhabited by ethnic minority groups. Their living conditions, traffic facilities and people's lives lag far behind those of the rural and urban areas in eastern China. It will take more than a decade or even decades of hard work for China to achieve all-round development in both urban and rural areas.

Chinese leaders are clear-minded about the situation. We still have a long way to go before we can achieve industrialization, urbanization and agricultural modernization. We still face daunting tasks in terms of improving the lives of urban and rural residents and realizing social equity and justice. We still need to make enormous efforts to achieve green, inclusive and sustainable growth. All these show that China has great potential for development and a vast market. We have full confidence in our development.

It's true that China's economy is under downward pressure. Yet, we believe that through economic structural adjustment shifting the growth model and by better harnessing the role of the market in resource allocation and earnestly pushing forward reform and opening-up, we are fully capable of sustaining stable economic growth. We will continue to implement a proactive fiscal policy and a prudent monetary policy, maintain the continuity and stability of our policies and intensify anticipatory adjustments and fine-tuning. I can tell you that none of the measures that we took this year goes beyond the requirement of the budget. They are all within the budget. We have set a lower growth target this year at 7.5 percent because this is conducive to economic structural adjustment and shifting the growth model. We still have ample fiscal and monetary policy space. Although the growth of fiscal revenues slowed down in the past two months, we still had a surplus of 1 trillion yuan by the end of July. And the accumulative surplus of the central budget stands at over 100 billion yuan as the stability and adjustment funds. We will use the funds at appropriate times for anticipatory adjustments and fine-tuning to promote stable economic growth.

Different from the situation in 2008 and 2009, not all enterprises and industries were sluggish in the first eight months. Heavy and chemical industries were in difficulty, while light industries were relatively sound; traditional sectors were in difficulty, while the high-tech industry and service sector were relatively sound; the eastern region was in difficulty, while the central and western regions were relatively sound. Besides, the share of non-governmental investment continues to grow and exceeded 62 percent in the first eight months of 2012.

This shows the structural problems in China's economy and the need to adjust the structure and shift the growth model. It also shows that no country can stay immune from the impact of the world economy. In particular, falling external demand has brought big difficulties to the export-oriented companies. We must reinforce confidence, place greater importance on stabilizing growth, further promote economic structural adjustment and improve people's livelihood. We are confident that we can achieve the development goals we set for this year. We have confidence in ourselves.

I have devoted 45 years of my life to the service of the country and will retire in a few months. I deeply value the opportunity of coming to the forum and meeting with friends and entrepreneurs around the world.

The World Economic Forum has chosen China because China has the largest population and is a country both old and young. She is old because she has a time-honored history and civilization. She is young because she is on the course of reform and development brimming with energy.

In the face of the world financial crisis, all countries need to enhance mutual trust and mutual understanding.