Address on current economy

First, we have taken forceful measures to release the huge dividends of reform. You may recall that during the period from the Second Plenary Session of the 18th CPC Central Committee to the annual sessions of the National People's Congress and the National Committee of the Chinese People's Political Consultative Conference this year, we set the goal of streamlining administration and delegating power. Much can be done in cutting the size of the government and, more importantly, transforming its function. As we all know, there is an "invisible hand" of the market and a "visible hand" of the government. Some people complain that the government's "visible hand" has become a "busy hand", and one needs to apply for approval in doing everything. You may have watched a TV report about a "long march" cartoon showing the lengthy approval process. Sometimes, just one application requires over 100 stamps of approval. In addition, numerous inspections and collection of fees have become a huge burden on starting business. While we are sparing no effort to help create jobs and start businesses in cities, such approval processes and inspections have poured cold water on people who want to start business. So we are determined to cut the number of items subject to approval.

In the past six months and more, the Central Government has taken major steps to abolish or delegate to lower levels the power of approval over 221 items. The policy of streamlining administration and delegating power has sent a very positive signal to the public and the market, which is to spur employment and encourage people to start business.

The other day I read statistics on business registration. In the third quarter of this year, the number of new market entities nationwide grew by 18% year-on-year, and private businesses grew by 31%. This is an explosive growth compared with the past few years, and it shows that major progress has been made in the reform. So we have taken transforming government functions as the breakthrough point in advancing reform. An important goal of establishing the China (Shanghai) Pilot Free Trade Zone is to streamline administration and delegate power and explore the management model based on negative list. The government should delegate power that should be delegated and assume full responsibility over matters that fall within its mandate.

Of course, reform is not just about transforming government functions. We need to do more. Economic growth hinges on adequate financial resources, and as it is difficult to increase fiscal revenue, we have to make best use of available resources. We have required the government to tighten its belt to make the people live a better life. The central Party leadership has issued the eight-point regulations, and the government has also issued orders to cut spending on official overseas trips, vehicles for official use and official hospitality. Starting from this year, administrative spending of Central Government departments will be cut by 5%. This has made it possible for us to reduce tax on small and micro businesses and exempt value-added tax and business tax on such businesses with sales of less than 20,000 yuan each. This benefits six million small and micro businesses employing over ten million people.

We have also reformed the investment system. As part of the reform of government offices, the Ministry of Railways was abolished and the China Railways Corporation was established. The over two million employees in the railway sector have made enormous and irreplaceable contribution to our country, the people and passengers. However, the Ministry of Railways, an arm of the government, also had business functions. This caused difficulties in financing, and it depended on budgetary support and issuing bonds backed by sovereign credit. Railway construction therefore slowed down over the past two years. What should be done? China's total length of railways is only 100,000 kilometers, while that of the United States is 250,000 to 270,000 kilometers. China's per capita share of railway is much lower than that of the developed countries. The railway sector, particularly in Central and Western China, still has potential of growth. We have turned the Ministry of Railways into a corporation, separating business functions from government ones, and this has made it possible for the railway sector to gain wider access to financing and attract private capital. Of course we need to ensure the safety of the railways and national security. As building railways has returns, it is attractive to private capital. We need to create platforms and conditions to speed up construction of railways in less-developed regions.

But comrades, we also face pressure when we take the second option. Some of you may have heard about the so-called "money squeeze". In June, the overnight interbank lending rate surged to 13% from the normal 3% plus. Such a rate is indeed very high. Some people overseas called it "money squeeze", or default on loans and liquidity shortage among Chinese banks. In the face of this situation, we were not scared, and we stuck to the adopted policy of neither loosening nor tightening the monetary policy. But to be frank, we needed to take this issue seriously although we did not panic. Why? Let me give you an example. The Internet is now quite developed. Someone made a slight change in "default among Chinese banks" and posted it online as "default of the Bank of China". You know that the Bank of China is one of the four largest state-owned commercial banks in China with the largest number of overseas branches. Due to time difference, market is open in Western countries when it is closed in China, and there was widespread speculation about possible problems in China's financial sector. We responded quickly by making clarifications. You see, this spark could trigger a big fire, if it is not put out in time. In light of the situation at the time, we directed the People's Bank of China and commercial banks to improve liquidity management and maintain appropriate money supply. On the other hand, we did not ease monetary policy. Instead, we took steps to guide public expectation and business activities, which ensured stable growth. Had we loosened monetary policy and increased deficit, it would be like trying to put out a fire with firewood. The fire would simply not stop as long as there is firewood. We have therefore pursued steady fiscal and monetary policies.