Li Keqiang: No place for ‘unilateralism’ in trade disputes

Li Keqiang: No place for ‘unilateralism’ in trade disputes
Chinese Premier Li Keqiang on Wednesday pledged a series of pro-business policies, including equal treatment for foreign investors, in a bid to retain confidence in the economy after Washington ratcheted up the pressure in its trade war with Beijing. The Annual Meeting of the New Champions..

Chinese Premier Li Keqiang on Wednesday pledged a series of pro-business policies, including equal treatment for foreign investors, in a bid to retain confidence in the economy after Washington ratcheted up the pressure in its trade war with Beijing. 

Background 

The Annual Meeting of the New Champions is the foremost global summit on innovation, science and technology, promoting entrepreneurship in the global public interest. Established in 2007, the Summer Davos Forum is held annually in China, alternating between two port cities of Tianjin and Dalian. The meeting convenes the next generation of fast-growing enterprises shaping the future of business and society, and leaders from major multinationals, government, media, academia and civil society. 

The recent World Economic Forum: Annual Meeting of the New Champions includes held from 18-20th September 2018 in Tianjin, People’s Republic of China includes over 2,000 participants from 111 countries. 

The meeting focused on the need of global collaboration to define the necessary principles of the Fourth Industrial Revolution - including artificial intelligence, blockchain and the internet of things - and the standards to ensure global interoperability. 

Analysis 

Chinese Premier Li Keqiang said on Wednesday that unilateral trade actions will not solve any problems, stressing that multilateralism should instead be upheld. 

According to Li, China used to grow at double-digit rates, but now the growth has moderated to a medium-high level of 6.9% in the first quarter of this year. Some characterize this trend as a slowdown, but that wouldn't be very accurate, as the Chinese economy has become much bigger than before. 

Every one percentage point of growth in GDP now would generate the same amount of additional output as 1.5 percentage point growth five years ago or 2 percent growth ten years ago.  For major economies with GDPs of two trillion US dollars or above, a 3% growth would be no mean feat. 

Mr Li remarked that to sustain positive momentum, China needs to focus and stay committed on a host of measures in the following areas: First, China will have to necessarily maintain stability in their macroeconomic policies. This means China must continue to implement a proactive fiscal policy and prudent monetary policy and not resort to massive stimulus measures. Instead, China must undertake structural adjustments and provide the market with stable and clear expectations, which is of overriding importance in a market economy. 

Second, China has to advance reform and opening-up. In undertaking supply-side structural reforms, the government will have to continue to streamline administration, delegate its power, widen market access and enhance compliance oversight to create a level playing field. China would try to ease corporate burdens by reducing taxes and administrative fees to unleash the vitality of the market. 

Third, it will be important for Chinese government to  accelerate efforts to replace traditional drivers of growth with new ones. China would adopt market- and rule-based approach to tackle and phase out excess and backward capacity in steel, coal and other sectors. Meanwhile, the Chinese would endeavour to find new drivers and encourage the development of new technologies, new business forms and models. In this process, the government will exercise accommodating and prudent supervision to provide an enabling environment for the healthy growth of the new economy. Furthermore, Chinese and foreign-invested companies will be treated as equals. 

According to Li, all foreign companies in China got a sweet return on their investment. High-profile founders Marc Benioff of Salesforce.com, Travis Kalanick of Uber and Lei Jun of Xiaomi were among the business leaders at the exclusive event, where Li spurned an opening address, saying he wanted to get right down to business and take questions from CEOs attending 2016's "Summer Davos." 

Benioff asked Li what he saw as China's most urgent challenges, and how businesses could partner with China to overcome them. Li said private businesses, both domestic and from abroad, had helped identify barriers to growth and innovation in China, but at the same time, he emphasized that even foreign companies that had encountered problems doing business in China had still done very well. 

"Even if you may have encountered a certain kind of difficulty or friction in the process, I believe if you take a look at the several years of your investment or your company, I feel pretty confident to say that for the vast majority of foreign investors, they will feel they have had a pretty high yield for their investment in China," Li said. 

The Chinese Premier got a loud laugh from the audience when he added, "It's not just a vast majority - I think it's over 99.9 percent." 

Alcoa chief executive and chair Klaus Kleinfeld brought up an issue that's made headlines, asking Li how China planned to manage overcapacity in some industries. 

"We've been working hard to phase out overcapacity, mainly in the steel and coal sectors. In the next few years we expect to phase out 100-150 million tonnes of excess steel capacity and 800 million tonnes of coal-making industrial capacity," Li responded. "That will involve the jobs of two million people." 

However, Li expressed confidence on the "new economy," including the growth of digital entrepreneurship, would help those workers find new jobs. 

KPMG 's global chairman John Veihmeyer wanted to hear from the Premier some details on China's efforts to strengthen its capital markets. 

"In developing capital markets here in China, we will guard against systemic and regional financial risks, and guard against so-called cross-infection of different financial markets. We'll also reform and improve our regulatory financial regime," Li said. 

"Just as China's economy [does], markets may have short-term fluctuations, which is unavoidable, but we will not allow roller-coaster rides of capital markets." 

Assessment 

Our assessment is that China is trying to convince some of the largest companies in the world to see the upside of doing business in China. We believe Li will continue to push for multilateralism and free trade as China has been a great beneficiary of globalisation since its entry into the World Trade Organization.

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