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Home > Ambassador Liu > Remarks > 2014
China Has A Bright Future In the Road Ahead
Speech by H.E. Ambassador Liu Xiaoming At the Marshall Society of Cambridge University
2014/01/27

Pro-Vice-Chancellor Professor Jeremy Sanders,

Ladies and Gentlemen,

Students,

It is a real pleasure to come back to Cambridge University. Professor Sanders mentioned my first visit. After that visit I returned to Cambridge again to donate books to Needham Research Institute.

Today’s event makes Cambridge the only British University that I have visited three times since I became Chinese Ambassador to the UK. Why Cambridge? An important reason is Cambridge has produced a galaxy of luminaries in so many disciplines. If a person is a mathematician, a historian, a politician and a philosopher at the same time, then how should we address such a being? How to describe one who is highly accomplished in so many fields? The answer I believe is, ‘An Economist.’

Sir Alfred Marshall was such a great economist. Today we pay tribute to his immense legacy as the founder of the ‘Cambridge School’. It is therefore a deep honor for me to speak at his eponymous society that bears his name.

The theme of today’s discussion is: ‘The Road Ahead: Visions for the Emerging World and Poverty.’

In any discussion about the emerging world or economies, a growing consensus is China is the bellwether. The rationale is that China is by far the largest emerging economy. Also, so far China has been the most successful and stable emerging economy.

Moreover in terms of poverty reduction China has, without question, made an extraordinary historical contribution to global poverty reduction. This achievement is not just a Chinese view. This is from The Economist newspaper in June 2013:

“China pulled 680 million people out of misery between 1981 and 2010, and reduced its extreme-poverty rate from 84% in 1980 to 10% now.”

Since ‘reform and opening up’ in the late 1970s, the Chinese government has carried out a massive poverty reduction program. The aim is to ensure food and clothing for the rural poor.

As a result, Chinese rural population in absolute poverty plummeted from 250 million to 32 million. This is a cut of 87%.

China was the first country to meet the UN Millennium Development Goal of halving the poor population. The Director-General of the UN Food and Agriculture Organization commented that:

“China’s efforts are the largest contributing factor to global poverty and hunger reduction.”

The UN Development Program concluded that without China’s achievements, worldwide poverty reduction would have fallen back.

Over the years, China has drawn useful experiences from its poverty reduction endeavors.

First, economic growth is the prerequisite.

In the past three decades since ‘reform and opening up’, China’s GDP has maintained an annual average growth of 9.8%. China’s GDP per head surged by 16 times on the basis of the 1978 level.

A thriving economy has created many jobs and increased incomes of tens of millions of farmer-turned workers. In addition, a flourishing economy also secured funding resources for poverty reduction programs.

An impressive input from government has driven such programs. For example, social benefits like a minimum living allowance, medical care, and the five guarantees for the rural vulnerable. These five guarantees are food, clothing, medical care, housing and burial expenses for the aged, the infirm, widows and orphans.

Second, the Chinese Government has recognized that a backstop for poverty reduction is a balanced regional development.

For geographical and historical reasons the majority of China’s poor population are in western regions. In 2000, China launched a huge program to develop the western provinces and regions.

The record shows that for over a decade more than 40% of the transfer payment from the central government has been spent on western development. This has strongly boosted the development of China’s western provinces.

I worked as assistant governor for two years in Gansu, one of China’s poorest provinces. There I personally witnessed the generous support for Gansu from the central government and affluent eastern provinces.

Last December I accompanied Prime Minister Cameron on his visit to the city of Chengdu in China’s Sichuan province. There too I saw the speed and scale of development in China’s west. The regional gap between China’s west and east is narrowing quickly.

The third principle of the Chinese Government for poverty reduction is that poor regions’ own development capacity is the key.

As an old Chinese saying goes:

“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”

In those poor regions China has taken measures to improve basic production conditions. In addition, efforts are made to increase capacity for self-development village by village.

For people living in places with extremely harsh natural conditions, the Chinese Government encourages them to move to more hospitable areas. In turn, their basic living and production conditions are fundamentally changed for the better.

On top of these policies China has optimized regional economic structure and increased incomes through programs like micro credit, vocational training and development of local specialty industries.

China takes very seriously its responsibilities as a large member of the world community. Whilst reducing its own poverty China has taken an active part in fighting poverty worldwide.

Since the beginning of this century China has provided assistance to more than 120 developing countries under the framework of South-South cooperation. China does this to the best of its abilities and has come a long way to improve self-development capacity of these countries.

Chinese contributions include:

· Building infrastructure.

· Industrial and agricultural production projects.

· Providing materials and assistance.

· Sending experts for technical cooperation.

· Contributing medical teams and volunteers.

· Offering emergency humanitarian relief.

· And providing human resources training

In the final analysis, poverty reduction is a matter of development. Mr Deng Xiaoping, the chief architect of China’s ‘reform and opening up’ policy, said:

‘Development is of overarching importance.’

China has made exceptional progress during the past three decades. China is now the world’s second largest economy and also the largest trading nation. But, with a population of 1.3 billion development remains a daunting task for China now and in the future.

There have been many discussions and forecasts about China’s future development. Some are optimistic. Others are pessimistic. Recently I have noticed some frequently used terms in these discussions. They reflect the close attention the world is paying to China’s development prospects. I want to share with you my thoughts on China’s development by citing these frequently used terms.

The first one is the ‘Lewis turning point’.

This concept comes from Sir Arthur Lewis who was a Nobel Prize laureate in economics. He is best remembered for his theory that in the process of development there will be a point at which the excess labor in the subsistence sector is fully absorbed into the modern sector. At that point further capital accumulation begins to increase wages. This is called the ‘Lewis turning point’.

Not long ago a shortage of labor was reported in some cities of China. Some believe this symbolizes the arrival of this ‘Lewis turning point’ for China’s economy. These analysts conclude that this is where China turns from an economy of excess labor supply to one of labor shortage.

Indeed the thinking behind the ‘Lewis turning point’ is taken very seriously in China. It has prompted China to speed up economic transformation and upgrading. The aim for China is to achieve sustainable development. China’s demographic dividend will not dwindle. Instead, it will be further released through reform. The reasons are as follows:

· First, China has no labor shortage now and will not have for a long time to come. The so-called Chinese labor shortage was only a temporary phenomenon. The Third Plenum of the 18th CPC Central Committee late last year set out a series of measures. These include:

o Quickening urbanization especially expediting the reform of household registration system.

o Lifting restrictions on mobility between towns, small cities and medium cities.

o And extending urban housing benefits and social safety net to the newly urbanized.

The above measures will encourage more surplus labor in rural areas to migrate to cities and ensure adequate labor supply for modern industry and services sector. In turn the urbanization process in China will continue to advance rapidly.

· Second, China is redoubling efforts to train its human resources. A highly skilled workforce will offset the extra cost caused by decreasing levels of low cost labor. In addition, the Third Plenum stressed deepening educational reform. The aim is to bridge the divide between regions, between rural and urban areas and between colleges. It is also designed to put in place a life training system and replace quantity with quality in labor supply. These policies will ensure that China will remain a country of abundant human resources.

· Third, there will be adjustments to China’s demographic policy. For example, the Third plenum revised the family planning policy, allowing couples to have two children if one parent is an only child. This policy adjustment is aimed to secure the following:

o Increase the base of population in employment.

o Tackle population aging.

o And guarantee the long-term stability of Chinese population.

The second frequently used term I want to cite is the ‘Gini coefficient’, also known as Gini index.

This is an important yardstick for equality of income and wealth distribution. A reading of 0.4 is internationally regarded as a warning for dangerous levels of inequality. In the recent decade, China’s Gini index has been between 0.47 and 0.49. This has underlined the pressing need to reform income distribution. China recognizes the dangers that can emerge from so big a gap between the rich and the poor.

In recent years, China has taken a number of measures to address the issue. For example:

· Raising minimum wage levels and pension standards.

· Adjust income tax rate and threshold.

· Increase transfer payment to low income earners.

· And scaling up support for agriculture, farmers and rural areas.

These measures have paid off.

Going forward, we will take into full consideration China’s realities. That will mean striking a balance between market and efficiency, and between development and distribution.

China will grow its economy so that there is more to share. China will improve income distribution so that the increased economic benefits are shared as widely as possible.

To this end, the Third Plenum has laid out the following measures:

· Protect income from honest work and raise the ratio of work pay in primary distribution.

· Improve the mechanism for advancing pay increases.

· Upgrade redistribution tools, such as taxation, social security and transfer payments.

· Enlarge the middle income class.

· Close the income gap between urban and rural areas, between regions, and between sectors.

· Form an ‘olive-shape’ income pattern.

At the same time, China views anti-corruption measures as an important means to increase income equality. Cracking down on corruption will stem ‘grey income’ from bribes, embezzlement and abuse of power. This will prevent rent-seeking and promote social equity and justice.

The third term I wish to cite is PM 2.5 density.

Particulate matter or ‘PM’ are tiny pieces of solid or liquid matter associated with the Earth's atmosphere. PM 2.5 refers to fine particles with a diameter of 2.5 micro meters or less.

PM 2.5 has become a household name in China. This is due to frequent occurrences of heavy smog across China. Though a meteorological term PM 2.5 has become a severe test for the Chinese economy.

So, how to cut PM 2.5 density? This mirrors a country’s approach to economic development. It raises the question whether China should achieve GDP growth at huge environmental and human cost? China’s answer is clearly ‘No’.

An important aspect of China’s endeavor to transform its economic growth model is to toughen measures of environmental protection. China should not single-mindedly pursue a ‘gold mountain in economy’. China should preserve and nurture green mountains in the nature.

Conservation of the eco-environment is an important part in the ‘five-in-one’ reform master plan drawn up at the Third Plenum.

This ‘blue print’ states that China will enforce the strictest regulation of environmental protection, damage compensation, accountability and punishment. China will also improve its system of environmental management and ecological restoration. Severe environmental damage is punishable by criminal law.

Recently, China has adopted measures to conserve energy and cut emissions. These include:

· Closing down large numbers of energy intensive businesses.

· Enforce vehicle restriction and emission rules.

· Use environmental protection as one of the criteria for assessing performance of local officials.

· Cancel mandatory GDP growth targets for natural conservation areas or ecologically fragile regions.

· And audit natural resources when a local official leaves his post.

London used to be known as ‘the city of fog’. Today, it has successfully shaken off that famous image. I am confident that likewise China can return to its people clear blue skies through the shift of China’s growth model and with comprehensive measures of pollution control and treatment.

The fourth term I will cite today is the ‘middle income trap’.

A 2007 World Bank report makes the following statement:

· After an emerging market economy rises above the poverty trap, marked by per capita GDP of 1000 US dollars or less, it will quickly arrive at ‘economic take off’.

· ‘Economic take-off’ means a per capita GDP between 1000 and 3000 US dollars.

However a per capita GDP 3000 US dollars is a high risk area. At this level, social tensions caused by fast economic growth have been shown to have the potential to explode. Then economic growth is blocked by social upheavals. Many developing countries are marooned in a ‘middle income trap’ and plagued by economic stagnation, crisis and social turmoil.

The lessons must be learned. China has studied the cases of many countries and drawn their lessons. China’s conclusion is that to avoid ‘middle income trap’ China must keep the growth engine running. This objective will be achieved through the following:

First, China will comprehensively deepen reform. Reform is the most powerful driving force for China’s development. The Third Plenum of 2013 is the manifesto and action plan for China’s second round of reform. The first round of reform emerged from the comparable Third Plenum in 1978 that gave birth to the ‘reform and opening up’ policies.

The 2013 Third Plenum asserted that market forces should play a decisive role in resources allocation. This is a major theoretical breakthrough. It is also the kernel of China’s economic reform. Following this principle, China will strengthen top-down design while continuing to ‘cross the river by feeling the stones.’ We will try to both achieve general progress and make advances in key areas.

Second, China will promote economic transformation and upgrading, greatly encourage innovation and expand domestic demand. The Chinese economy is shifting from reliance on factors of production to innovation. Through scientific innovation, we aim to reduce energy and resources consumption as well as lower environmental cost. We aim to achieve parallel progress in industrialization, informationization, urbanization and agricultural modernization. In terms of domestic demand, the recent Financial Times forecasts for 2014 are very upbeat about China, predicting a growth of over 7%. A main reason is it believes that consumption in China will continue to grow.

Third, China will properly handle social problems like income distribution, population aging and social welfare. China will break the fetters of vested interests, allow the mass population to share the fruits of development and ensure continued economic growth.

Last but not least, I want to say a few words about the Thucydides trap. You may wonder why as this is not an economic term, but a term of international politics.

2500 years ago, the Greek historian Thucydides wrote of the war between Athens and Sparta like this:

‘It was the rise of Athens and the fear that this inspired in Sparta that made war inevitable.’

A generalization of this argument is an emerging power is bound to challenge an established power. The latter without exception reacts to the challenge. Hence war is inevitable. This is the doom scenario of power politics. With China growing to become the world’s second largest economy, this is a popular prediction.

However, history is not science. There is no law in history. The purpose of recording history is to warn later generations from repeating previous mistakes. In the past one hundred years there have been two tragic world wars. They occurred in age with limited global interdependence. Now we are in an era when countries have become interdependent as never before. That means that conflict and war is no longer the only way to obtain resources and markets.

Without peace, there is no development. China is committed to the path of peaceful development. China’s foreign policy is crafted to serve its development at home by creating an enabling external environment. At the same time China will maintain and promote world peace and prosperity through its own development.

China will not follow the footsteps of some countries in the past. China is dedicated to realizing the ‘Chinese Dream’ of national rejuvenation. The ‘Chinese Dream’ is in line with the world’s dream. China hopes the ‘Chinese Dream’ will come true together with the ‘American dream’, ‘European dream’ and ‘African dream’. I assure you of China’s magnanimity.

In recent years China has initiated and further developed the concept of ‘new power relations’. This new type of relations between big countries are defined by a partnership of mutual respect and mutual benefit.

This is not only necessary for China-US relations. It is also an inspiration for China’s relations with other countries. To be specific, such relations feature non-conflict and non-confrontation. It requires the following principles:

· Reasonably view each other’s strategic intentions

· Properly handle differences through dialogue and cooperation.

· Respect each other’s choice of social system and development path

· Respect each other’s core interests and major concerns.

· Discard a zero-sum game mindset.

· Accommodate other’s interests while pursuing one’s own.

· And promote common development while achieving one’s own.

I believe that our world is big enough for China and the US to grow together, and big enough for all countries to prosper together.

Ladies and Gentlemen,

Through one turning point, two indices and two traps, I have in effect laid out China’s measures and visions for future development. This covers China’s economic, social, environmental and foreign policies. I hope that my introduction will offer you a perspective to study and comprehend China’s future trajectory.

Ladies and Gentlemen,

Sir Alfred Marshall held a personal credo:

“A simple explanation, for the very fact of being simple, is certainly wrong.”

China’s development is an endeavor never seen in human history both by scale, speed and by complexity. There will be no simple solution. It will not be plain sailing. However 1.3 billion Chinese people have the courage and confidence to surmount all difficulties and challenges on our way forward.

The people of China are confident that going forward they will make another wonder with the Chinese economy.

Chinese people will fulfill their nation’s great revitalization in the road ahead.

In turn that advance will make an even greater contribution to global growth and prosperity.

Thank you!

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