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Opinion / Op-Ed Contributors

Reforms at a 'critical juncture'

By Dan Steinbock (China Daily) Updated: 2014-03-17 07:39

The increasingly volatile global markets set the scene for Premier Li Keqiang's press conference on the last day of the National People's Congress annual session. Li reiterated what he had already said in the Government Work Report: China has reached a "critical juncture where our path upward is particularly steep".

As Li sees it, the basic conditions underpinning development are undergoing profound changes as "deep-seated problems are surfacing, painful structural adjustments need to be made, the pace of economic growth is changing, and downward pressure on the economy remains great".

That's the challenging part of the story. But there is another side to it as well. China continues to have the foundations-including potential for industrialization and urbanization-to maintain a significant rate of growth for some time to come.

In the nearly two-hour long press conference by Li, every fourth question was on China's economic development and reforms. Li said China will seek sustained growth through reforms and deleveraging. China's growth target will remain about 7.5 percent this year, he said, but it will be "flexible".

As the policy focus is shifting from sheer growth to employment and increasing people's incomes, economic targets are now more malleable. The goal is sustainable growth, which will benefit the people. But the government has to control excessive leverage and financial risk.

Li hopes to create 10 million urban jobs this year and keep the urban unemployment rate at 4.6 percent. Amid the country's urbanization drive, the government built 5.4 million subsidized housing units last year. This year, it will build 7 million more. Increasing social financing means budget deficit, but the government hopes to keep it at 2.1 percent of the GDP. With its austerity drive, the government seeks to lead by example by drastically reducing its expenditure.

China's industrial structure is undergoing a deep change. For the first time, the service sector has surpassed the industrial sector. "We will press ahead with fiscal, tax and financial reforms," Li said.

The key tasks for 2014 include market-driven reforms to boost domestic demand as the engine of growth, modernization of agriculture, people-centric urbanization, and improvement in the education and healthcare systems.

Until the recent past, China was seen as the "world factory". But it is gradually morphing into a global research and development hub. Li hopes to accelerate this shift by allocating 2.2 percent of the GDP for R&D.

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