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Vice Premier Wu: China's Development Road, 2006

Keynote Speech at the First China-U.S. Strategic Economic Dialogue
December 14, 2006

Thursday, December 14, 2006   
Wu Yi, Vice Premier of the State Council of the People's Republic of China
(December 14, 2006 Beijing)

Through all these years' interactions with all quarters of the U.S., the government and the public, we have had the genuine feeling that some American friends are not only having limited knowledge of, but harboring much misunderstanding about the reality in China. This is not conducive to the sound development of our bilateral relations. Therefore, we believe it highly necessary to introduce to our American friends through the opportunity presented by this first dialogue as to: What's the exact shape of the development road that China has been following all these years? Why did we choose this road? And how will this road lead into the future? Our particular hope is to let people in the world know that China's development is an opportunity instead of a threat to the world, that it is a propelling force behind the growth of the world economy. It is my hope that this dialogue will enable you to have a relatively comprehensive and systemic perspective of China, a better knowledge of our country, thus enhancing our mutual understanding and trust.

It is by no means easy to shed light on all facets of China's development road in a short speech. I would like to proceed from the following four aspects.

I. China's adherence to a path of peaceful development

The choice by the Chinese people to follow a peaceful path to development is a wise decision based on China's traditional culture, painful history and her tremendous achievements at the current stage.

China is an ancient civilization boasting 5,000 years' history with the tradition of seeking mutual complementarities, accommodation and integration with foreign cultures. Our ancestors have always underscored the "cherishing of harmony." In China's history of interactions with the outside world, she has consistently focused on the practice of befriending her neighbors while pursuing harmony out of a respect for differences. More than 2,000 years ago, China had exchanges of envoys, trade in commodities and cultural interchanges with her neighboring countries, with the westward trip by envoy Zhang Qian of Han Dynasty chartering out a "silk road" in the Euro-Asia continent. More than 1,000 years ago, China was carrying out exchanges with the outside world over both land and sea, achieving an unprecedented prosperity and selling such commodities as tea, silk and porcelain to many countries in Asia and Europe. About 600 years ago, Voyager Zheng He of Ming Dynasty in China led his fleet to the West Seas for seven times, reaching out to more than 30 countries and regions across Asia and Africa. He brought along with him not only advanced agricultural and handicraft techniques, but also exquisite products and sincere friendship. Such a cultural heritage has decided that today's China will inevitably choose peaceful development to sustain the continuity of history as well as to align herself into the currents of peace and development in the global context.

From the Opium War and the First Sino-Japanese War after the 1840s, China's War on Foreign Invaders 1900 to the Japanese War of Aggression against China in the 1930s, China was subject to the butchering of the then strong powers in the West and East and their extremely barbarian economic depredation. This, coupled with feudal corruption and years of successive civil strife and chaos, led to the loss of China's sovereignty and the horrendous suffering of her people, her national strength failing and people barely surviving. The grave disasters and the harsh facts have ingrained deeply into the Chinese nation the value of peace and the importance of development. Such a historic experience has shaped the psychology of the Chinese people in our quest for peace and hope for stability, consolidating our belief in following a path to peaceful development.

After the founding of New China in 1949, we have made arduous explorations in the course of our development, going through both the joys of success and the frustrations of failure. Starting from 1978, China has embarked on a new journey of transforming from a planned to a market economy, from cloistered up to opening up, from exclusive self-sustaining to integration into globalization. By following a path of building socialism with Chinese characteristics in an independent and self-reliant manner, we have scored glorious achievements that attracted worldwide attention. Practice has amply demonstrated that it is right to adhere to a path of peaceful development, as it conforms to both China's reality and the trend of the times. China will unswervingly march onward alongside this path to peaceful development.

II. China's adherence to the central task of economic development and full commitment to domestic development

This is decided by China's national conditions and it reflects the common desire of all Chinese ethnic groups.

1. China is the largest developing country in the world. China has the typical feature of dual structure as a developing country. With a big population and a weak economic foundation, China is one of the countries having within it the widest gap of the natural and geographic conditions as well as the population and resources distribution in the world. It is also one of the countries with the sharpest discrepancy of development between the urban and rural areas and among different regions. With respect to urban-rural gap, in 2005, urban per capita disposable income in China reached 10,493 yuan while rural per capita income stood at 3,255 yuan, with income gap ratio of 3.2:1. With respect to regional difference, in 2005, per capita GDP in eastern, central and western China were 24,905 yuan, 11,930 yuan and 9,280 yuan respectively or 2.68: 1.28: 1 in ratio terms; and urban per capita disposable income in the three regions were 12,584 yuan, 8,787 yuan and 8,598 yuan respectively or 1.46: 1.02: 1 by ratio. China's economic aggregate ranked the fourth worldwide in 2005, but per capita GDP was only 1,700 U.S. dollars, still placed below the 100th in the world.

To change the underdeveloped productivity remains a long-term and arduous historic task for China. Calculated at an annual average growth rate of 7-8 percent and taking population growth into account, even if by 2020, China's per capita GDP approached 4,500 dollars, she would still lag behind the 1999 average level of 4,900 dollars in high- and mid-income countries. To understand the status quo of China's development, one should not only look at coastal regions and cities in the East, but pay more attention to the central and western regions as well as the vast rural areas. The principal contradiction in the Chinese society remains the one between the ever growing material and cultural needs of the people and the backward social production. Only by focusing on development in the long run can China lay a necessary material foundation for the constant improvement of the people's living standard.

2. The Chinese people have reached a well-off standard of living only in general terms. The Chinese people's basic demand for food and clothing has just been overall met. Residents' income and consumption level are by and large still low. Public services in employment, education, medical and health care and pension among other fields are not enough. About one-fourth of the population are not living a well-off life. They are mainly concentrated in the rural areas and central and western China. According to China's poverty standard, there are still over 23 million impoverished people in the countryside. The 50 million plus who have just got out of poverty are still facing uncertainties. According to the World Bank standard (namely daily consumption less than 1 dollar), there will be as many as 150 million Chinese people living in poverty. Furthermore, according to the latest statistics, there are 82.96 million handicapped people in China.

3. China's industrialization and urbanization are far from being completed. At present, the proportion of China's rural labor to total employment is still much higher than those in industrialized countries and in some developing ones. In 2005, the urban and rural employed population totaled 758 million. The transfer of rural labor force to non-agricultural sectors and urban areas constitutes an extremely daunting task. It is estimated that 300 million people will migrate from the rural areas within the coming two decades. Over the next ten odd years, China will witness 8 to 10 million newly increased population every year. Under the current economic structure, if an 8 percent economic growth rate is sustained, China will create over 10 million jobs, including supplement to natural job-cuts. At present, the level of China's urbanization is lower than the world average, the ratio of which is expected to reach 47 percent by 2010. Confronted with such a huge challenge, it is imperative that China commit herself to accelerating economic development, properly handling contradictions that have emerged and might appear, and gradually realizing the smooth transformation from the urban-rural dual economic structure to a modern economic mix.

4. China's development presents an arduous task but has a promising future. China has established the objective of building a well-off society at higher levels that benefits over one billion people by 2020, and then to basically realize modernization by the mid 21st century, with the economic and social development reaching the level of medium developed countries. These step-by-step and interlinked development goals were identified after consideration and deliberation of China's realities, and could only be attained through unremitting efforts. From 1979 to 2005, China's GDP had grown at an annual average rate of 9.6 percent. Such a rapid growth momentum will be sustained for the next 15 years. China has the potential and conditions to maintain fast economic growth for a fairly long period in that China has huge market demand, a relatively high residents' saving rate, abundant labor resources with ever-increasing quality, and reform and opening-up will invigorate the inherent vitality of economic development. China will uphold the scientific concept of development featuring people-oriented, comprehensive, harmonious and sustainable development, and strike a proper balance between urban and rural development, development among different regions, economic and social development, development of man and nature, and domestic development and opening up to the outside world, earnestly gearing economic and social progress onto a track of scientific development.

III. China's adherence to a new path of industrialization

China clearly states to pursue a new path to industrialization featuring high scientific and technological content, good economic returns, low resource consumption, little environment pollution and a full display of advantages in human resources.

1. Sticking to the new concepts of development. China will pursue scientific development, step up efforts to transform the extensive economic growth pattern to an intensive economic growth model featuring small input, low consumption, low emission, high efficiency and being recyclable, thus actively promoting economic and social development coordinated with the situation of population, resources and environment.

2. Sticking to the strategic guideline of expanding domestic demand. The large population, ever-increasing residents' income and gradual upgrading of the consumption structure in China have provided favorable conditions for the expansion of domestic demand. Top priority has been given to enhancing the consumption capacity of farmers and mid- and low-income people in cities. Adjustment has been made to the saving-consumption relationship and the distribution structure of national income, so as to gradually increase the consumption rate. Pro-consumption policies and measures have been perfected, with the consumption areas expanded and the consumption structure upgraded. Better public services such as education, medical and health care, pension, and social security have been provided to urban and rural residents, with people's capability of immediate consumption strengthened. The rural market has been energetically explored, with the consumption environment improved and the consumption potential tapped. Consumption has been reasonably guided, the consumption expectation stabilized, and sustained and fast consumption growth promoted. In the long run, this will offer strong impetus to the sustainable and rapid growth of China's economy.

3. Sticking to the transforming of economic growth pattern. Despite fast economic growth, China's economic growth model is still extensive in nature. China will take enhancement of innovation capability as the strategic starting point for scientific and technological development and the central task in economic restructuring and the economic growth pattern transformation, endeavor to achieve breakthroughs in strengthening the ability of independent innovation and building an innovation-oriented country. By improving its market-oriented technology innovation system that pools the efforts of industries, the academia and research institutions with enterprises as the major players, China will vigorously support original innovation, integrated innovation and innovation based on introduction and absorption of overseas technologies. Financial and taxation policies that encourage and support technology innovation will be applied, with the construction of a technology innovation service system facilitated. The key role of talents in technology innovation will be brought into full play so as to guide economic development onto a track of relying on the scientific and technological progress and the improvement of labor qualifications.

4. Sticking to the promotion of balanced development between the urban and rural areas and among different regions. The lagging-behind rural development and urban-rural dual structure are the sticking point in China's modernization drive. China will adopt the policy of industry back-feeding agriculture, urban areas supporting rural areas and giving more to, taking less from and allowing more flexibility for the rural areas and farmers, expedite the building of systems and mechanisms for balanced urban-rural development, promote comprehensive rural reform, develop modern agriculture, reinforce rural infrastructure, drive rural social undertakings, enhance agricultural efficiency and rural development and boost farmers' income. China will continue to strengthen support to underdeveloped regions and areas with difficulties. China has identified the Strategies of Western Development, Revitalizing Northeastern Old Industrial Bases and the Rise of Central China, with corresponding supportive policies unveiled, aiming at quickening the development of the central and western regions and gradually narrowing the gap among different areas.

5. Sticking to resolving the energy and resources problem by relying mainly on domestic supply and development. China is a large energy consuming country, and at the same time, a big energy producer. Since the 1990s, China has kept an energy self-sufficiency rate of above 90 percent. China still enjoys great potential in energy supply, having in mind her abundant proven deposit of coal, likelihood of discovering new oil and gas fields, and a broad prospect of new energy and renewable energy development. By laying equal emphasis on energy development and conservation while giving priority to the latter, China will promote the saving of energy, water and land, energetically develop recycling economy, step up conservation-oriented technology upgrading of enterprises and utilize resources in a more comprehensive manner, so as to shape a model of energy- and resource-efficient economic growth and consumption. China advocates intensified cooperation among consuming countries of energy and resources, and between producers and consumers, with a view to jointly safeguarding the stability of international energy and resources market and realizing win for all through deepened labor division and mutually beneficial trade.

6. Sticking to the basic state policy of environment protection. Undergoing a process of moving forward industrialization and urbanization, China faces mounting pressure on the environment. China, while undertaking transferred international manufacturing business, is exposed to huge risks that industries with high energy consumption and pollutants emission might also be transferred. By adopting a comprehensive approach with priority given to prevention, China has intensified protection of the ecological environment, popularized clean production, advanced environmental science, implemented major projects of ecological construction and environment improvement, perfected economic policies conducive to environment protection, strengthened external regulation and gradually improved the eco-environment. Compulsory indicators concerning energy consumption and environment were put forward in The Eleventh Five Year Plan for National Economic and Social Development, with a medium and long-term plan for energy conservation formulated. China will actively engage in international cooperation and introduce advanced technologies and energy-saving and environment-friendly projects. As a developing country, China ratified the Kyoto Protocol in 2002 to take the initiative in assuming international responsibilities.

7. Sticking to the building of a socialist harmonious society. Development should be comprehensive, covering a wide range of areas such as economy, politics, culture and society. China underlines that a harmonious society should be built and shared by all the people. It is a society of democracy and rule of law, fairness and justice, integrity and fraternity, vitality, stability, order and harmony between man and nature. The Chinese society today is generally a harmonious one, but there still exist some acute contradictions and problems that affect social harmony. With priority given to solving the most practical problems of interests that the people are most concerned about and that affect them most directly, China will focus on developing such public social undertakings as education and health, promote fairness and justice in the society, cultivate a culture of harmony, improve social governance, enhance social creativity and inclusiveness and pursue a path to common prosperity, so as to advance coordinated development of the society, economy, politics and culture.

IV. China's adherence to reform and opening up

Reform and opening up are the most distinct characteristics of contemporary China, and an important experience for the success of China's economic and social development.

1. Continuing to improve the socialist market economy system. With the market economy system preliminarily established, China is witnessing growing levels of marketization. Currently, over 95 percent of total social retail sales of commodities are market-priced, and the proportion of added-value created by non-state-owned sectors in GDP has exceeded 60 percent. Meanwhile, social productivity still faces many institutional obstacles in its development in China, calling for continuous and more in-depth reform. From now on for a certain period in the future, China will further improve her economic system, bring into better play the basic role of the market in resource allocation, enhance vitality and competitiveness of enterprises, improve the national system for macro economic control and perfect the functions of government administration and public services. The basic economic system of keeping public ownership as the mainstay and allowing multiple forms of ownership to develop together will be perfected. We will continue with the reform and reorganization of large-scale SOEs, encourage strategic investors to participate in the diversification of investment makers and property, and make share-holding system the key form of public ownership. A uniform, open, competitive and orderly modern market system be put into place, administration systems, fiscal and taxation regimes, as well as economic and legal systems be improved, the systems of employment, income distribution and social security be perfected, and a mechanism created to ensure sustainable economic and social development. China will continue to deepen reform of the financial system, improve the market of production factors such as capital, land, technology and labor, reform the price forming mechanism so that interest rate, exchange rate, labor force, land, resources and other production factors are genuinely priced based on market supply and demand, thus raising the efficiency of resource allocation. China is drafting The Property Law and emphasizing equal protection of national, collective and private properties according to law. This is critically important for the improvement of the market economy system and property system in China.

2. Continuing to improve the level of opening up. Opening up is a basic state policy of China. China's economy has deeply integrated into that of the world. As the world's third largest trading nation and importer, China is already a link in the global supply chain. China will continue to perfect the legal and policy system for opening up, rectify the market operation order, perfect the market credit system and improve the market regulation system in line with international rules and practice. Efforts will be made to cultivate an environment for fair competition and to form a stable and transparent foreign-related economic management system. China will continue to intensify IPR protection in a responsible manner. To improve IPR protection is necessitated by China's drive to open up wider and encourage innovation. China will faithfully honor her international obligations on IPR protection, strengthen collaboration with other countries and international organizations, and continue to build a solid system and environment for IPR protection. China will continue to uphold the multilateral trading system. Already being the most open developing economy and having an opening level almost equivalent to those of developed countries in services trade, China will continue to live up to its WTO commitments. Since its WTO accession, China has reviewed and amended about 3,000 laws, regulations and department rules, with the legal framework governing foreign-related economic activities constantly improved and transparency of trade policies continuously increased. In its recently released report, the WTO Trade Policy Review Body has given a high and positive evaluation of China's performance as a WTO member since her accession. China is actively driving the Doha round of negotiations forward and stands ready to play a constructive role in bridging the differences between developed and developing members. China will actively push forward regional trade and investment liberalization. China is actively engaged in consultations and talks with a number of countries and regions on building organizations of regional economic integration. China is taking the lead in promoting bilateral trade and investment liberalization. China advocates open regional cooperation and all her bilateral free trade arrangements are WTO-compatible, non-discriminatory against the third party and constitute no new barriers to trade. China will continue to promote a rough balance of international payments. Attaching great importance to the issue of trade surplus, China is unceasingly increasing imports to offset the trade surplus and striving for a rough balance between imports and exports.

3. Continuing to move forward reform of the political system. China's reform is across-the-board, covering such facets as the economic system, political system, cultural system and social system. To develop socialist democratic politics and to build socialist political civilization have all along been important items on China's reform and development agenda. Over the years, China has continued to deepen the reform in her state leadership system, election system, legislative system, decision-making system, judicial system and the system of check and supervision so as to ensure that such rights as democratic election, decision-making, administration and supervision be exercised by the public. China will continue to develop more institutionalized and standardized socialist democratic politics with well-defined procedures and to build a socialist country ruled by law. In the next five years, China will give priority to the administrative system reform, speed up the transformation of government functions, build a responsible and service-oriented government based on rule of law, reduce direct government interventions in resource allocation and micro economic operation, strengthen government functions in providing public goods and services, and establish and improve the macro control system dominated by indirect regulation. China respects and protects human rights and values the active role of international human rights conventions in advancing human rights. By 2005, China had already acceded to 21 international human rights conventions and taken many measures to earnestly implement her obligations under these conventions.

Last but not least, I would like to emphasize by pointing out that China is a member of the world family. China cannot develop without the world. The world also needs China for its prosperity. China adheres to the path of peaceful development. China's development is peaceful, open, cooperative and harmonious in nature. By taking a peaceful approach to development, China is fully harnessing world peace to develop herself and promoting world peace through her own development. China has already announced to the world that China was and is not in hegemony and will never seek hegemony even when becoming powerful in the future. China advocates keeping the diversity of development modalities and encourages all models to draw merits from one another, which is important for the robust advancement of the global economy. China's development will not challenge the existing international order. China has always played a constructive role in international affairs and hopes to rationalize the international political and economic order through reforms. The Chinese people are willing and ready to join hands with people around the world to cultivate a harmonious world with lasting peace and common prosperity. We believe that China, being the world's largest developing country with 1.3 billion people, have the sustainable development of her economy and the stability and harmony of her society as her biggest contribution to world peace and development.