China's Economy in the Year of the Dragon
Speech by H.E. Ambassador Liu Xiaoming at the DLA Piper Breakfast Meeting
（From Chinese Embassy in UK）
London, 2 February 2012
Ladies and Gentlemen.
It is a great pleasure for me to address such a distinguished group of business leaders at this breakfast meeting.
DLA Piper is a leading global law firm and has flourishing operations in China.
I believe that the DLA reputation and the success of its global business derive from a deep understanding of the world economy.
That's why the breakfast meeting today offers an excellent opportunity for me to share my thoughts on the outlook of the global economy. And at the request of Lord Clement-Jones, I will focus on China's economic dynamics and the ecnomic and commercial relations between China and Britain in particular.
We are now in the fourth year of the global financial crisis. It's clear that 2011 was a year of continued turbulence for the world economy.
The developed economies performed poorly and are dangerously close to a double-dip recession. Their growth and recovery were weak amid the spiraling debt crisis in America and Europe.
There now appears a consensus that the developed world in 2012 will show the following trends:
· Personal income will be down.
· Jobless rate will be up.
· And consumption will be squeezed.
What is certain is that in the post-crisis era, the world economy will face more uncertainties and complex challenges. It's a time when public confidence badly needs to be restored.
This lingering crisis in the developed world threatens to depress economic activity in the wider world. The silver lining is that emerging economies have shown stronger resilience and have remained on a fast track of growth.
China is one of the leading emerging economies. The Chinese economy has maintained over 32 years of 10% annual growth. In addition, China has emerged as the world's second largest economy and the second largest trading nation.
China is also a responsible member of the global community. China made some very important strategic policy changes last year. The objective was to bolster global economic demand by boosting Chinese domestic consumer demand. This in turn was planned to result in a big increase in demand for imports into China from around the world.
This policy was a success. The evidence is that despite external demand contraction, the above actions delivered solid growth, price stability, economic efficiency gains and improved livelihood for people.
2011 saw a 9.2 percent economic growth in China and its return to a prudent monetary policy.
There was much comment and analysis about the property market in China. Indeed property prices in China came close to a tipping point. But decisive action by the Chinese government meant that inflation declined as expected to 4 percent at the end of the year.
As I have described, the world economy in 2011 posed great external risks and volatilities for China. However, China's macroeconomic management was widely viewed as being effective and successful.
Turning to 2012, the prospects look just as challenging as 2011. The downside pressure is mounting in both China and elsewhere in the world. The world economy is likely to slow down further.
In its latest World Economic Outlook, the IMF cut the global growth forecast. In addition, the report highlighted the threat of the Eurozone debt crisis to the world economy.
China is certainly not immune to global economic uncertainties. In addition, China must also confront its problems at home.
We need to tackle the unbalanced, uncoordinated and unsustainable elements in the economy. And never before has an economic restructuring been so pressing and necessary.
For China, this complex and challenging economic environment demands a cool headed response.
China's policy is firm and clear. This means continuing to balance and deliver a number of competing economic demands:
· China will deliver macroeconomic stability and at the same time seek sustainable growth through ambitious structural reform.
· China will focus on steady growth, keep a tight control on inflation, and maintain social stability.
· At the same time, China will seize opportunities to further transform its growth model. This has a stress on boosting domestic demand, deepening reform, opening-up and delivering a better life to our people.
To be specific, we will focus on three areas:
First, improve macroeconomic management.
This means China will fine-tune the intensity, pace and focus of the macroeconomic policies. The pro-active fiscal policy and prudent monetary policy are expected to continue.
More will be done to create conditions for improving people's livelihood and economic restructuring.
Also high on the agenda are policies for preventing and defusing financial risks and putting the property sector on a path to healthy growth.
Second, economic structural reform.
China will strengthen domestic sources of growth, develop a solid real economy, and pursue balanced, coordinated and sustainable growth.
China is committed to moving from an export-driven model towards greater domestic consumption. Our aim is to build an innovation driven, green economy where high value-added industries are thriving. Meanwhile, regional development strategies will be implemented in different parts of China to narrow the urban-rural divide and regional disparities.
Third, improve people's living standards.
We will do everything we can to address public concerns about jobs, welfare and public services.
We will give greater priority to job creation, education, medical services, social security, and public housing programs in overall budget allocation. Funding and planning will be designed to deliver equal access to public services for all.
Ladies and Gentlemen,
Today, China is very much the focus of world's attention. Whatever China does can easily hit front pages and headlines in Britain and worldwide. Understandably, views and comments about China are mixed in the media
Pessimists predict a Chinese 'hard landing'.
Optimists anticipate China's stronger leadership role in boosting the global economy.
There are also commentators who hope that China will save Europe and the entire world.
Let me offer my comment on these different predictions.
First, a 'hard landing' in China will not happen.
As I said earlier, a policy of 'fine tuning' by the Chinese government is underway. This means macroeconomic management is more focused and flexible so as to effectively prevent crisis. More important, China's growth potential is strong and shouldn't be underestimated.
From the demand side, China is on a fast track process of industrialising and urbanising. China's urban population has just surpassed the rural population. Over the next decades, migration on a huge scale from rural to urban areas will continue. This will create enormous demand for investment in housing and infrastructure.
China's internal economic imbalances among regions offer significant room for economic growth. Over the past three decades we have often seen emerging growth centres become effective drivers of investment and consumption.
One of the biggest potential contributor to China's growth will also be the huge potential of its consumer spending.
In China rising levels of income will create a significant advance in domestic consumption.
Individual purchasing power in China is shifting from 'survival consumption' such as food and clothing. The pattern of consumption is moving toward more diverse needs including housing, transport and education. This is an encouraging process that will provide more market opportunities to manufacturers and service providers inside and outside China.
From the supply side China is now a capital-rich society. China will continue to have a deep pool of labour for a long time to come.
An ageing population can pose a challenge. It will worsen the dependency ratio and erode China's 'population bonus'.
But as government invests more in education and skills training, the human capital will have a greater potential to rise and will be a new driver of economic growth.
This leads me to my second point. A strong Chinese economy will underpin a positive global role of China.
China is a large and responsible member of the global community of countries. In this role China will continue to take effective steps to contribute more to world economic development.
China is committed to an opening-up policy and a win-win strategy for the world. China's 10 years of WTO membership saw its annual imports grow by nearly 100 billion US dollars. In the 12th Five Year Plan period from 2011 to 2015, the aim of China will be to import a total of 8 trillion US dollars in goods and services.
As parts of a broader strategy to balance trade and sustain growth, China will undertake a raft of other measures. These include improving import mix, streamlining import management procedures and strengthening import promotion.
I am confident these steps will generate historic opportunities within the Chinese market and benefit China and the entire world.
At the same time, the Chinese government encourages Chinese businesses to go global.
Last year, China's direct investment overseas for the first time broke the 60 billion US dollar mark.
By late 2011, Chinese investors had set up 18,000 businesses in 178 countries and regions. This added up to an investment value of 322 billion US dollars and created more than 1 million jobs.
This surge in China's outbound investment has two important impact:
First, this is a boost to the growth of receiving countries.
Second, this is a significant contribution to the prosperity of the world.
Now, let me close with a word about the business relationship between China and Britain.
For decades, Britain has been a major economic partner of China.
In recent times there has been a renewed commitment by Chinese and British leaders to deepen two-way trade and investment. These are some of the key aims:
· The leaders of our two countries have agreed an ambitious objective. This is to increase our bilateral trade to 100 billion US dollars by 2015.
· We are working together to make infrastructure, advanced manufacturing and green energy the new highlight in our partnership.
This joint endeavor holds out great promise. The reason is that these objectives are built upon an obvious deepening of our two countries' economic links in recent years.
Last year, bilateral trade reached 58.6 billion dollars. That is up by 17 percent year on year. During 2011 UK exports to China recorded an impressive 28.8 percent rise.
China's investment in Britain has also been fast growing. In fiscal year 2010-11, China became the seventh largest investor in Britain by the number of projects.
Chinese businesses clearly recognise the UK's value in their global strategies. From their viewpoint, the UK is a major European investment destination. They have chosen Britain not only to do research and development, but also to base their European headquarters.
I would like to draw your attention to an important event that happened in late 2011. China and Britain hosted an infrastructure investment conference in London. This was a high-level platform for officials and corporate leaders from both countries. In the meetings there was a focus on investment opportunities, operation models and rules of participation in Britain's infrastructure sector.
What is encouraging is that this shared vision of China and Britain in infrastructure cooperation has been quickly translated into a substantive first step in early 2012.
Last month, China Investment Corporation announced a deal of equity investment in the Thames Water. This has been by far China's biggest commercial deal in Britain's infrastructure sector.
Ladies and Gentlemen,
This year is the year of the Dragon on China's lunar calendar. In the Chinese culture, the dragon is seen as a symbol of prosperity and success.
My hope is that this auspicious year will bring good fortune to China, Britain and the whole world.
We all look forward to a continued strong performance of China's economy and another fruitful year in China-UK economic relations.
Now I'm very happy to take your questions.