Experts applaud Li's speech in Davos

Chinese premier calls for concerted efforts to bring global economy out of stagnation

In a speech on the night of Jan 21 to kick off the annual World Economic Forum at the Alpine ski resort of Davos, Premier Li Keqiang expressed his deep concerns that the global economy is worsening and urged world leaders to implement concerted efforts to bring it out of stagnation.

While Li vowed that China will continue its own economic transformation by sustaining a sound and steady economic growth as it experiences a slowdown, he also said in his half-hour speech that the world's second largest economy is not heading for "a hard landing".

Data released on Jan 20 by China's government showed that the national economy grew by 7.4 percent in 2014, its slowest pace in 24 years.

Flemming Christiansen, chair of political sociology of China at the University of Duisburg-Essen n Germany, says Li's speech was a response to the "new global context" as perceived by the forum's organizers that focused on the uncertainties in China's economic transformation.

"There has been much talk among observers about inherent instabilities in China's development model in the last year or so. The main issues raised have focused on the risks inherent in China's real estate market and the practice of shadow banking. Both risks were real and severe," says Christiansen.

Li dispelled concerns about an immediate plunge in the nation's housing market, though he admitted the central government has seen "turbulence" and "signs of decline" in the market's volume of transactions.

"If there is some turbulence, it is only (because of) normal adjustments," he said in his speech.

"The potential demand for real estate will remain high for a long time in China because of the large number of rural residents moving to urban areas every year," he said at a question-and-answer session with the forum's International Business Council.

Bart Dessein, professor of Chinese language and culture at Ghent University in Belgium, says Li made a reassuring speech on two fronts: China's national and international dimensions.

Domestically, he says Li emphasized the so-called new normal phase of growth that China is currently transitioning into that stresses quality over quantity.

"For the foreseeable future, the growth path will not change from this new normal. Focus will be on reforms - financial, fiscal, regulatory - that unleash the creativity of the people and will, overall, make sure that the well-being of the Chinese people will rise," Dessein says.

But he adds that a path of qualitative growth needs international collaboration.

Li also said the internationalization of the yuan is necessary as China grows as an international trade partner. As with economic development, the yuan's globalization will need a balanced and deliberate process.

On Jan 21, the central banks of China and Switzerland agreed on a deal to establish a yuan trading center in Zurich to allow investors in Switzerland to invest renminbi directly into Chinese financial markets.

Li and Simonetta Sommaruga, president of the Swiss Confederation, witnessed the signing of the agreement on Jan 21 that will see the establishment of a Chinese bank's first branch office in a country known for its banking prowess. Swiss authorities still need to approve of the agreement, which is a major step in helping Zurich become an important yuan offshore center.

Dong Jinyi, former Chinese ambassador to Switzerland, said closer financial cooperation with China exemplifies Zurich's optimism about the Chinese currency and economy.

Thomas Wagner, president of the Swiss-Chinese Association, says "China has become more and more an indispensable stabilizing partner in our globalized world. I would encourage and share Li's confidence," Wagner says.

Wagner says structural reforms in many sectors, the encouragement of efficient management and improving the rule of law are China's basic principles to resolving economic stagnation.

"I hope that Li's statement will become a constructive guideline for the future development of our world," he adds.

Rana Mitter, professor of the history and politics of modern China at the University of Oxford, says China is still an important target for global investment and trade.

Mitter adds that trading services into China will become an important part of the new normal and that it is imperative that China opens its markets to open the door to overseas providers to stimulate competition.

"It is vitally important that key players including China, the EU and the US work to calm the world's hot spots," he says.

Mitter says China needs to work out how to maintain a stable and growing domestic consumer economy and implement systemic reforms, including changes to the residency restriction system to widen the pool of domestic consumers.

David Fouquet, senior associate at the European Institute for Asian Studies in Brussels, says Li also raised many questions.

"The world is wondering if China can maintain its engine of growth if it slows down. To my mind there is still considerable growth potential, but it also depends on how the markets respond and whether China continues to import and invest outward," says Fouquet.

Fouquet says one question lingers: How much will China continue to reform?

"All speculative market bubbles are frightening and China's is no exception."

But Nicolas Musy, managing director of the nonprofit Swiss Center Shanghai, says China, which has been a global growth engine since 2009, is still "essential to the world at a time when Europe, Japan and Russia are not growing or growing very little".

"I am quite confident that Li's recipe is the right one. Innovation will allow both: high-quality growth and higher efficiency in the production of goods and services."

Zhang Chunyan and Liu Jia contributed to this story.

Contact the writers at fujing@chinadaily.com.cn

(China Daily European Weekly 01/23/2015 page3)