Li’s Upbeat Message Is Seen as Sign of New Confidence

PREMIER Li Keqiang recently stated that the Chinese economy continues to provide vital support to the global economy despite concerns of a slowdown.

This statement was made during a news conference following the conclusion of the Second Session of the 13th National People’s Congress, China’s top legislature, on March 15.

“China’s economy will remain an important anchor of stability for the global economy,” he said.

Li, who answered 18 questions from Chinese and international media in a two-and-a-half-hour conference, ruled out resorting to quantitative easing to achieve the 6 to 6.5 percent growth target he set in the Government Work Report on March 5.

He said that some of the growth would be driven by the private sector. There are 100 million market entities in China, and when their “vitality is fully unleashed there would be incalculable energy created,” Li said.

Ding Yuan, vice president and dean of China Europe International Business School in Shanghai, said Li’s upbeat message reflected new confidence in the Chinese economy that has emerged over recent weeks and might not yet be reflected in the headlines.

“There was a lot of negative sentiment at the end of last year, but perhaps we will all come to realize that this was perhaps the darkness before the dawn,” he said.

“There were encouraging signs

about consumption in January and February, and we recently held a roundtable debate of heads of multinationals in China, and they were optimistic about prospects for this year,” he said.

Li also said the nearly RMB 2 trillion (US $298 billion) in tax cuts, many of which targeted small and micro businesses, would boost the economy this year. The corporation tax rate for businesses with turnover of less than RMB 1 million will fall from 10 percent to five percent.

Russell Brown, managing partner of Lehman Brown, a Beijing-based accountancy firm, and also former chairman of the British Chamber of Commerce in China, said rates on the mainland are now competitive with those in Hong Kong.

“These are now very competitive rates that should have an overall benefit for the economy. They should also lead to less tax avoidance, and so there might not be a reduction in the overall tax take in the long run,” he said.

Li said that despite the scale of the tax cuts, which also include major value-added tax reductions, China would increase the budget deficit by only 0.2 percent, which would still be within the norm for developed countries of around three percent. He said some of the deficit would be financed by profits from state-owned enterprises.

“To fund the deficit using the dividends from the equity ownership of state-owned enterprises is a logical choice,” said Zhu Ning, a professor of finance at Tsinghua University.

“Central and local government borrowing is beginning to reach its limits, so this is probably the right way to go. His message on quantitative easing will also perhaps alleviate some market concerns.”

Li also spoke about U.S.-China trade tensions, and despite what he called “twists and turns” in the relationship, he said he believed the shared longterm interests of the two countries far outweigh their differences.

He said he did not believe the two economies could ever “decouple” and hoped the current talks between the two countries would deliver results.

He Weiwen, a senior fellow at the Center for China and Globalization, a Beijing-based independent think tank, and a former economic and commercial counselor in the Chinese consulate generals in San Francisco and New York, was confident the dispute will be resolved.

He pointed out that trade between the two countries had hit a record of more than US $600 billion in 2018 despite the tensions.

“Over the past 40 years, there have been political tensions between the U.S. and China, but the bilateral trade volume has increased more than 200 times, which is unprecedented in human history,” he said.

He also pointed out that the huge profits of some of the U.S. multinationals that are coming from their operations in China – particularly in semiconductors, such as Qualcomm and Intel – helped fund these companies’ global research and development efforts.