Chinese parliamentary sessions 2014

'Tough road' ahead for reform effort

Premier Li Keqiang has made progress in his first year with overhauling the economy, but he still faces huge challenges, analysts say

PUBLISHED : Tuesday, 04 March, 2014, 5:02am
UPDATED : Tuesday, 04 March, 2014, 5:02am

Li Daike is the kind of man leaders in Beijing would like to see a lot more of on the mainland as they try to wean the nation's economy off debt-fuelled government spending and reduce the power of massive state-owned enterprises.

Li is young, ambitious and entrepreneurial. He has taken advantage of economic reforms overseen by Premier Li Keqiang that allowed him to get a licence to set up a limited liability company.

The 24-year-old from Guangdong province was able to do so after the government loosened regulations that stipulated the minimum capital he needed was 30,000 yuan (HK$38,000).

"It would have been impossible for me, a graduate fresh out of university, to start the business if the government did not get rid of its minimum registration fee and reduce other charges," said Li, who comes from Shantou .

The easing of capital controls to set up companies is one a series of reforms which have been loosely dubbed by some economists as "Likonomics".

The term was coined by media and investment bank economists in June to summarise the premier's strategy of reducing debt and economic reform without stimulus by the state.

However, the buzz surrounding "Likonomics" faded after President Xi Jinping revealed he was steering the administration's economic reforms programme, which was announced in November.

Steve Tsang, director of China Policy Institute at the University of Nottingham in Britain, said the move suggested Xi had taken over the policy reins even in areas held by the premier in previous administrations.

"It implies that Xi is sending out a clear and powerful signal that he is in charge, and he expects Premier Li to function as the equivalent of a chief operating officer in the group," Tsang said.

Still, November's reform blueprints preserved much of the essence of Li's direction. The government wants to shift the economy away from state monopolies and reliance on exports towards a stronger private sector and higher domestic consumption.

Laurence Brahm, a Beijing-based political economist and columnist, said a decade of rapid, uncontrolled growth fuelled by huge state spending had left the mainland with a ruined environment and raised doubts over whether its polluted land could support the needs of the nation in the future.

"Li is seeking to rebalance growth. If he succeeds in pushing forward these policies they could prove China's most significant set of reforms since premier Zhu Rongji's in 1998," said Brahm, referring to efforts that reduced the workforce at bloated state enterprises by more than 50 million.

"These are the big challenges that Li seems to be determined to address head on," Brahm said.

Li, who became premier in March last year, is a trained economist. He set out nine key goals in his first year, including reducing the government's power to intervene in the markets and lowering the number of investments needing state approval.

Shen Jianguang , chief China economist with Mizuho Securities Asia, said one of the initial effects of Li's policies had been slower growth. The mainland's economy grew by a relatively modest 7.7 per cent last year, compared with double-digit rises in the gross domestic product in the previous decades.

But Shen said that as the economy's footing shifted, lower growth was to be expected. Government statistics suggested manufacturing was playing less of a role, he said, with the service sector accounting for 46 per cent of GDP last year.

Progress has been made in rebalancing the economy, said Louis Kuijs, chief China economist at the Royal Bank of Scotland, but doubts remained over whether Li could force through reforms in the face of opposition by those in the Communist Party with vested interests in state enterprises.

Kuijs said it was significant Xi Jinping had taken charge of a leading group, that included Li, to oversee all aspects of the reform process.

This suggested the government was putting as much political muscle as possible into breaking through "institutional stumbling blocks that have hindered reforms in politically difficult areas", he said.

Harley Seyedin, an executive at an energy company operating on the mainland and an official with the American Chamber of Commerce, said the road ahead would be tough for the government.

"We must recognise that change is always difficult and often painful, and as a result it creates much resistance," Seyedin said.