Emerging Innovation

　　Amid a painstaking and challenging transition， China looks for new sources of growth through reform and innovation

　　Inside a gargantuan wave-roof building in Tianjin， a coastal city in north China that combines Chinese and Western elements， political leaders， business elites and economists from all over the world recently spoke their minds on economic issues that have generated plenty of public concern. This was the host venue of the World Economic Forum’s Annual Meeting of the New Champions 2014， also known as the Summer Davos， which ran from September 10 to 12. With the theme of Creating Value Through Innovation， the forum concentrated on the ongoing and upcoming changes confronted by the global economy， especially the Chinese economy.

　　“Innovation is vital to the steady recovery of the world economy. It’s also essential to upgrading the Chinese economy and improving its performance，” said Chinese Premier Li Keqiang at the opening ceremony on September 10， attributing China’s steady and sound growth in recent years to reform and innovation.

　　As the global economy continues recovering at a fairly moderate pace， almost 90 percent of the emerging market had witnessed a slowed growth in the past 18 months， according to Zhu Min， Deputy Managing Director of the International Monetary Fund. In the first half of the year， the Chinese economy registered a 7.4-percent growth rate， close to the 7.5-percent target and still within the proper range.

　　Despite a slowdown in economic growth， from January to August this year， the registered unemployment rate stayed at around 5 percent in 31 large and medium-sized cities； more than 9.7 million urban jobs were created， which is 100，000 more compared with the same period last year， according to Premier Li.

　　After three decades of explosive growth， the once miracle maker now seems to have entered a period of transition. “As the old two engines of growth - export and real estate - are gradually phasing out， new ones are coming in， which explains the current economic slowdown，” noted Li Daokui， Dean of the Schwarzman Scholars Program at Tsinghua University.

　　As a matter of fact， the Chinese Government has launched several policies in hopes of spurring structural upgrading， ranging from streamlining administration and delegating powers to the lower levels， to adopting measures such as cutting the reserve requirement ratio for certain banks and reducing taxation on small and micro-businesses.

　　“The current slowdown is temporary. Now， the Chinese economy is going through a U-shift adjustment. If the reforms are successfully carried out， GDP growth will be able to recover a little bit，” said Li， arguing that China’s GDP is equivalent to only 19 percent of that of the United States， posing tremendous potential for further growth.

　　Key questions

　　“A key question for policymakers is what structure to reform，” argued Zhu， pointing out that each sector of the economy， such as infrastructure construction， the labor market and pensions， needs a specific plan， not a general conception.

　　In fact， steps have been quickened to boost the service industry. In the first half of the year， the number of newly registered service businesses surged by more than 70 percent and the service industry outperformed the manufacturing industry in terms of growth rate and share of GDP， said Premier Li in his speech at the opening ceremony.

　　Li Daokui believes the new growth engines consist of consumption-based infrastructure investment， private consumption， and the greening up of production capacity from steel and petrochemical industry to power generation.

　　In the first half of the year， the growth in investment and production of industries with high energy consumption and emissions noticeably slowed down， per unit GDP energy consumption dropped by 4.2 percent year on year， and carbon intensity was cut by about 5 percent， the largest decline in the past few years， according to Premier Li.

　　The country is also prepared to embrace a bottom-up reform featuring endeavors to transform state-owned enterprises (SOEs). As early as February， China’s largest state-owned oil-refining company China Petroleum and Chemical Corp. (Sinopec) took the initiative to open up its domestic marketing and distribution operations to private investors.

　　“SOEs’ reform does not just mean the introduction of mixed ownership. In fact， the diversification of shareholding has been in progress since 1984， and now it’s promoted more as a main model making up China’s basic economic system，” said Fu Chengyu， Chairman of Sinopec.

　　Fu argued SOEs should build up their core competitiveness as private companies do， and the recipe is to expose them to the market and de-administration. In other words， reform doesn’t mean the elimination or privatization of SOEs， but the modernization of the corporate governance system.

　　“All the companies should be thrown into the sea of the market， in which they would vie to win consumers by virtue of high quality and advanced technologies，” said Dong Mingzhu， President of Gree Electric Appliances of Zhuhai. Dong noted that excessive administrative governance would severely undermine the long-term viability and growth of enterprises.

　　Amazing force

　　In his speech， Premier Li laid emphasis on promoting institutional innovation as well as innovation in science and technology， and expressed confidence in China’s innovative potential.

　　“Just imagine how big an innovation force it could be when the 800 million or 900 million workers among the 1.3-billion population become enthusiastic about entrepreneurship and innovation，” he said， calling it the fuel of sustained economic development.

　　China ranks 28th in the Global Competitiveness Report 2014-15， leading among the BRICS (Brazil， Russia， Indian， South Africa and China) countries， partly because of its favorable environment for entrepreneurship and innovation， which will continue to top the agenda of China’s development in the days to come.

　　To give more space to entrepreneurship and ensure that the blood of innovation can filter into the social fabric of China， the government hopes to complete the task of removing and delegating items subject to government approval within a two-year period.

　　In addition to streamlined administration， institutional improvement is also underway. A list of administrative powers， which defines the scope of what the government should do， will be published to prevent the abuse of power. A negative list， which defines areas off-limits to businesses， will be formulated to increase transparency and fully unleash the vitality of enterprises. A list of government responsibilities， which defines how the government should regulate the market， will be put in place to expose its actions to public scrutiny.

　　The three lists supplement each other and will ensure the legitimacy of government power， the transparency of corporate innovation and the rationality of market competition， said Xin Ming， a media commentator.

　　Opening wider

　　Anti-trust probes into foreign companies such as Microsoft， Qualcomm and Audi have sparked some criticism over possible discrimination by Chinese authorities. However， statistics show that since China’s Anti-Monopoly Law went into effect on August 1， 2008， the number of foreign enterprises investigated has accounted for only 10 percent of the total.

　　“China opposes protectionism in all its forms or any trade war and advocates the building of an open， fair and integrated global market，” said Premier Li， confirming that China will continue to pursue a more proactive strategy of opening up.

　　Klaus Kleinfeld， Chairman of Aluminum Co. of America， said Premier Li’s speech helped to dispel the worries of foreign corporate leaders and boosted their investment confidence over their future development in China.

　　“Since anti-monopoly is in the interests of consumers， it will exert a positive influence，” said Li Zhen， President of E. J. McKay， a leading Chinese investment bank.

　　As one of the parties involved in the anti-trust torrent， Paul Jacobs， Executive Chairman of Qualcomm， also expressed the company’s willingness to reach win-win cooperation with its Chinese partners. Given its constantly growing economy， strong consumer demand and abundant cooperation opportunities， China will continue topping the list of Qualcomm’s overseas investment destinations.

　　To strike a balance between promoting economic development and opening up， China is trying to unveil a management model of pre-establishment national treatment plus a negative list by first carrying out a test in the China (Shanghai) Pilot Free Trade Zone.

　　Zhang Xiaoqiang， Vice Chairman of China Center for International Economic Exchanges， said the new model is likely to shepherd more foreign investors into China’s service industry.

　　“Overseas companies will find more opportunities on offer in a number of emerging industries， such as energy conservation and environment protection services， new energy and high technology，” said Zhang.

　　By Deng Yaqing