China's government pledged Wednesday to promote sustainable growth by opening state-dominated industries to private investment and making banks more market-oriented while keeping this year's economic expansion at a relatively robust 7.5 per cent.
In his first annual policy speech as China's top economic official, Premier Li Keqiang said Beijing will promote consumer spending, ease exchange rate controls and improve access to credit for productive businesses.
Li's pledges were in line with Communist Party plans issued in November that call for promoting market forces and domestic consumption to replace a model based on exports and investment that delivered three decades of explosive growth but has run out of steam.
"We need to make sure the market plays a decisive role," said Li in a nationally televised speech to China's legislature. He promised to "break mental shackles and vested interests" — a reference to possible resistance from state companies that might lose subsidies and monopolies.
'Painful adjustment' lies ahead
Li set an official growth target of 7.5 per cent. That was the same as last year but looked unusually ambitious after growth in 2013 tumbled to a two-decade low of 7.7 per cent as the government cooled a lending and investment boom. That suggested Beijing is trying to reassure companies and financial markets it is ready with interest rate cuts or other steps if needed to keep growth in the world's No. 2 economy from falling too low.
"Despite the painful adjustment ahead, the Chinese authorities have no plan to slow the speed," of economic expansion, said Citigroup's Minggao Shen and Ding Shuang in a report.
"We sense that the government is not ready to accept growth much lower than 7.5 per cent," the two economists said.
They said the government would deploy stimulus measures if quarterly growth fell to 7 per cent or less.
Defence gets biggest boost since 2011
Entrepreneurs and investors are watching the annual meeting of the National People's Congress for details of how President Xi Jinping and other party leaders will carry out their November pledge to give markets a "decisive role" in allocating resources. That could radically change an economy dominated by state companies that receive low-cost access to loans, energy and land.
The party says its plans are the most ambitious reforms since the late supreme leader Deng Xiaoping's launch of market-oriented change in 1979 that set off China's boom.
Beijing also announced the biggest increase in military spending in the last three years, saying Wednesday that it would hike the defence budget by 12.2 per cent in 2014 to 808.23 billion yuan ($131.57 billion US), as it develops more high-tech weapons and bulks up coastal and air defences.
"This is worrying news for China's neighbours, particularly for Japan," Rory Medcalf, a regional security analyst at the independent Lowy Institute in Sydney, told Reuters news agency.
Medcalf told Reuters that those who thought that given the slow economy, Xi would concentrate on domestic development rather than military expansion "underestimated the Chinese determination to shape its strategic environment."
China has increasingly been making its Asian neighbours nervous as it has sought to bulk up its presence and assert control over disputed waters and islands in the East China and South China seas and has been projecting its power even farther into the western Pacific and Indian Oceans.
Bank, finance reform promised
On the economy, Li has said that although Beijing has tackled an abrupt decline in growth in mid-2013 with a mini-stimulus of higher spending on railway construction, further gains must come from longer-term restructuring.
Still, despite pledges of reform, the ruling party made clear the limits to possible change in its November plan by declaring that state ownership will remain the core of the economy. Beijing has issued a flurry of minor changes such as simplifying processes for registering new businesses but has yet to take action on major tasks such as overhauling the state-run banking system.
On Wednesday, Li promised changes in banking and finance that reform advocates say are essential to making the economy more efficient and productive.
Banks will be given more control over lending and interest rates, the premier said. That would allow profitable companies to compete for credit by paying higher rates, possibly channeling more money to entrepreneurs who generate most of China's new jobs and wealth but are mostly unable to get loans from the state-run system. It also might boost rates paid on savings, putting more money in the pockets of Chinese families and encouraging consumer spending.
More private investment
The premier also threw the government's support behind the growth of popular new internet-based banking services, promising to promote their "healthy development."
Services such as one launched by e-commerce giant Alibaba Group have drawn billions of dollars in deposits from small savers by paying higher rates than state banks. Critics see them as a threat to a financial system that supports politically favoured companies. A commentator for state television last month called them "financial parasites."
'We will enhance people's ability to consume.' - Premier Li Keqiang
Li promised to open state-controlled industries such as banking, oil, power generation, railways and telecommunications to private investment. He pledged to "level the playing field" for Chinese and foreign companies to promote competition.
The premier gave no details about key issues such as whether private investors would gain any management control in state-run industries. That is in line with a time-tested strategy under which the ruling party experiments with reforms in a single city or province and studies the results before crafting detailed rules for rolling out changes nationwide.
Beijing will make domestic demand "the main engine driving growth," Li said. He promised to promote consumer spending by raising incomes and encourage growth of service industries such as education, tourism and care for the elderly, the premier said.
"We will enhance people's ability to consume," said Li.
In a separate report, the cabinet planning agency, the National Development and Reform Commission, promised to experiment with a change sought by business groups to simplify investment by issuing a "negative list" of fields that are off-limits, leaving all others open.
That would overturn a system under which investors wait for each industry or line of business to be declared open to private competition. Companies say that system fails to keep pace with changes in technology and markets.