By Mr. Zhang Xiaoqiang

Vice Chairman, National Development and Reform Commission, China

June, 9th, 2009

Distinguished Chairman,

Dear friends,

Good afternoon. It’s my great pleasure to participate this conference. Taking this opportunity, I would like to give you a brief overview on how China is affected by global financial crisis and its current economic situation. Besides, I would like to talk about some of my views on the future development prospects of China.

My introduction includes 4 parts:

Part 1: the impact of the global financial crisis on China.

The severe financial crisis has spread from developed countries to developing countries, from financial sector to the real economy. China has been deeply involved in economic globalization. Therefore, the spreading crisis has caused considerable impact on China with following indications:

Due to dramatically declining demand on international markets, China’s foreign trade has fallen by a large margin, with trade volume declining for 7 months since November, 2008. From January to May this year, total foreign trade saw a year-on-year drop by 25%.

As one of the big economies highly dependent on export, China’s export in 2007 was equivalent to 37% of GDP, which was 2.3 times that of Japan, and 2.7 times of India. The shrinking foreign trade resulted in continuous drop of economic growth rate. In 2008, economic growth rate dropped from 10.6% in the 1st quarter, to 6.8% in the 4th quarter. In the 1st quarter of 2009, the growth rate even dropped to 6.1%, which was the lowest ever since the establishment of quarterly GDP accounting system in 1992. This has lead to difficulties in many enterprises and mounting pressure on employment. Some experts estimate that there is a reduction of more than 10 million jobs for rural migrant workers and 6 million college graduates this year are facing a tough time on job market.

China’s economy has been hit by the financial crisis. However, we should not put all the blame on the worsening external environment. There are some institutional and structural problems inhibiting sound economic growth. The inhibiting factors include insufficient consumption demand; widening regional disparities and income gap, with income gap between urban and rural areas standing at 3.3 to 1 in 2008; weak capacity in innovation in some enterprises; high dependency on investment; high consumption of energy and resources, as well as heavy pollution in the process of industrialization and urbanization, etc. For instance, coal accounts for 70% in China’s energy consumption mix. China emitted 23 million tons of sulfur dioxide in 2008, which was the world’s highest. When external circumstances were favorable, these problems were not so pronounced but when a large scale crisis hits, the problems manifest themselves more obviously.

Part II: active measures taken by China and its current economic situation.

When the financial and economic crisis began to sweep the world, China, as a responsible country, adjusted macroeconomic policies immediately. The government has made ensuring steady and fast economic growth as the top priority. We have enhanced and improved macroeconomic regulatory and control by emphasizing the expansion of domestic demand, particularly, the consumer demand. We have also given priorities to the shift of growth pattern, strategic restructuring of economy, and improving people’s livelihood so as to achieve harmony in society. We have made resolute efforts in enforcing proactive fiscal policy and moderately easy monetary policy. By formulating and rolling out a series of relevant measures, we have launched a whole package of policies.

The major 6 contents are as follows:

First, substantially enhance government spending, and encourage the financial sector to give more support to businesses hit by the crisis.

Chinese government launched an additional two-year investment plan totaled 590 billion US dollars, the size of which was equivalent to 13% of GDP in 2008. The investment would be channeled to programs for improving living condition of rural people, programs for housing, infrastructure construction of railway and water facilities, programs of social undertakings, environmental protection, and reconstruction in earthquake-hit areas. To cover the gap of government revenues and expenditures, we have set this year’s budget deficit at 140 billion US dollars, equivalent to 3% of GDP. Meanwhile, to strengthen financial support for economic growth, we lowered the required reserve ratio and benchmark interest rates for four times. For enterprises, particularly Small- and Medium-sized Enterprises, which have met with temporary difficulties but enjoy good credit records and market prospects, we encourage financial institutions to give them more credit and guarantee support, providing that financial risks are properly controlled. From January to April this year, newly increased loans extended by financial institutions amounted to 760 billion US dollars, 8% higher than all the increased loans of last year. Nearly 50% of new loans came to the SMEs, thus providing strong impetus to economic growth. Moreover, we have adopted tax deduction, tax rebate or tax credit to reduce burdens of enterprises and residents.

Secondly, boost domestic demand with particular emphasis on consumer demand.

We put great emphasis on improving the consumption capacity of residents especially that of the low income group, and we are stepping up efforts in stimulating rural consumption, as well as promoting services-related consumption.

Specific measures includes: 1. raising the income of residents. In the 1st quarter of 2009, government life subsisting allowances for urban and rural low income residents grew by 48% and 130% respectively; 2. exploring rural consumption by giving subsides to farmers who have bought specific household appliances, automobiles or motorbikes; 3. promoting consumption of cars by lowering purchase tax for cars with 1.6-liter engine or below; encouraging services-related consumption, such as tourism, and culture events. In the 1st quarter of 2009, the number of Chinese having domestic and overseas trips reached 560 million and 12 million respectively, growing by 9.4% and 5% over the same period of last year. There are 30 million new mobile phone subscribers in China. Telephone users have exceeded 1 billion for the first time by the end of March.

Thirdly, consolidate and strengthen the position of agriculture as the foundation of the economy, and promote steady development of agriculture.

China feeds 20% of world population by less than 9% of world farmland. With bumper harvests for five consecutive years, China has ensured 1.3 billion people’s food security and also contributed a lot to the world food security. We will adjust the agriculture structure in a market-oriented manner and improve the quality and competitiveness of agricultural products. We will intensify efforts to develop rural infrastructure, including projects to provide safe drinking water, enhance power grids, roads, etc. We also accelerate development of rural secondary and tertiary industry. We will support development of rural processing industry and marketing of agricultural products.

Fourthly, accelerate transformation of growth pattern, and energetically promote strategic economic restructuring.

Emphasis will be given to implement plans for adjusting and invigorating ten industries from 2009 to 2011, namely, iron and steel, automobiles, shipbuilding, petrochemical, light industry, textile, non-ferrous metals, equipment manufacturing, electronics and information technology, and logistics. Aimed at solving pressing problems and increasing future development momentum, these plans encourage raising industrial concentration levels and technical levels of backbone enterprises. In order to promote development of emerging industries, the State Council of China approved policies to promote development of bio-industries on 13th of May. Currently, we are also formulating development plan for the new energy industry and vigorously promoting environmental friendly industries. Another priority is to promote innovation. This year, we will launch 16 key projects in the National Program for Long and Medium Term Scientific and Technological Development, including new generation broadband mobile communication, water pollution treatment, development of new medicines, and trunk line airplanes. The central government will allocate about 4.8 billion US dollars for these projects, 5 times that of last year. We also attach great importance to key energy-conserving and environmental protection projects. Within the above-mentioned 590 billion US dollars stimulus package, 31 billion US dollars will be used for projects of environment protection, emission reduction and ecological development.

Fifthly, deepen reform and opening up, and provide sustained driving force for development.

We will focus in the following four areas: 1st, improve the economic management roles of government, and further reduce items requiring administrative approvals; and make more sectors available for non-public investment; 2nd, move ahead with price reform for resource products. Let the market play a major role in allocating resources so as to promote resources conservation and environment protection; 3rd, carry forward reform of the fiscal and taxation systems, reform of the financial system and the state-owned enterprises; 4th, deepen the reform in foreign-related economic areas, and strive to construct a more open economic system conducive to mutual beneficial and win-win development. China will stand firm to oppose trade and investment protectionism. Stability of foreign trade will be achieved by a series of measures, such as encouraging import of advanced equipment, technology, raw materials and consumption goods, increasing loans and guarantees for imports and exports, and increasing tax rebates in line with international practices. We encourage foreign companies to invest in China in the industries like high-tech, advanced manufacturing, energy conservation, environmental protection, resources integrated utilization and modern services, etc. Meanwhile, we also encourage competent Chinese enterprises to “go global” by carrying out globalized operations through multiples ways of cooperation with foreign enterprises.

Sixthly, energetically develop social program, and vigorously ensure and improve people’s well-being.

Major measures are as follows: encourage enterprises to have on-the-job training, work shifts, etc so as to maintain stability of employment. We have adopted policies and measures to promote job creation for college graduates and migrant workers. From January to April this year, government allocated 36 billion US dollars for social security and employment, up by 45% over the same period of last year. The basic pension for enterprise retirees increased by 11% over last year, and coverage for a variety of social insurances further expanded.

This April, Opinions of the CPC Central Committee and the State Council on Deepening the Reform of the Medical and Health Care System and Implementation Plan for Recent Priorities of the Health Care System Reform were released. In the coming 3 years, we will step up efforts to reform public hospitals, establish a national system for basic medicines, and improve the community-level medical and health service system. All residents will be covered by the basic medical care system. It is estimated that government at all levels will spend 125 billion US dollars in this regard, including 48 billion US dollars from the central government.

Seen from the current situation, relevant measures have yielded preliminary successes, with positive indications as follows:

1st, investment is accelerating and investment structure optimized. From January to April, fixed asset investment grew by 30%, 7 percentage points higher than the same period of last year;

2nd, consumption grows fairly fast. From January to April, social retails volume grew by 16% compared with the same period of last year. Sales of automobiles, houses, and home appliances have shown steady growth. Auto sales in China topped 3.8 million, growing by 9.6% over the same period of last year and ranking top in the world for the first time. Sales of commercial houses grew by 18% over the same period of last year.

3rd, agriculture shows good momentum, with grain sowing areas expanded and plants growing well. This year we will have a good harvest for six years in a row.

4th, industrial production gets steady and market confidence restored. In the first four months, the value added of industrial enterprises was up by 5.5%, with March and April growing by 8.3% and 7.3% respectively. Market confidence has been increasingly restored. PMI in May reached 53.5, staying above the critical point 50 for 3 consecutive months.

5th, income of urban and rural residents grew by 11.2% and 8.6% in real terms respectively in the first quarter. In the first four months, there are about 3.7 million newly added jobs and 1.7 million laid off workers get re-employed.

In a nutshell, the plummeting trend of our economy has been arrested. Under the current circumstances of global financial crisis, China’s economy growing by 6.1% in the 1st quarter of this year, indeed, is an eye-catching performance. These indications have proven that policies made by Chinese government are correct, timely, powerful and effective. According to the current momentum, GDP growth in the 2nd quarter is expected to be even higher than the 1st and China is positioned to realize the goal of 8% growth through our efforts.

We are clearly aware of the fact that as external environment remains harsh, global financial crisis continues to spread and have its impact on China. China’s economic recovery is not so solidly based. One point I should mention is that although China’s GDP last year was 4.2 trillion dollars, with the growth rate 9%, per capita GDP was only 3200 dollars, about one thirteenth that of UK. There are still nearly 800 million people living in rural areas and 150 million people living under the poverty line of the United Nations. There is a long way to go for China to realize modernization. But, at the same time, I do believe there are positive conditions and elements for China’s economic and social progress.

First, China has huge commercial opportunities and growth potential. In the rapid process of industrialization and urbanization, great demand will be generated by development of infrastructure, the upgrading of the industrial structure and consumption patterns, projects for environmental protection and social programs. All of these will definitely be a strong driving force for fairly high economic growth. For instance, in the coming ten years, 19 cities in China plan to construct over 2000 kilometers of subway, which requires an investment of 120 billion US dollars and in the coming two decades, China needs to purchase over 3000 trunk airplanes.

Secondly, China still enjoys some favorable conditions. We enjoy good material, technological base and institutional conditions that have been created in the 30 years of reform and opening up. We have abundant high-quality, low-cost labor resources. China also has a solid financial foundation. By the end of 2008, the accumulated government deficit accounted for 20% of GDP, much lower than 67% of the Euro Zone, 71% of the United States, and 163% of Japan. The financial system is sound and operating smoothly, with abundant capital resources. By the end of March, the total amount of savings deposit in China amounted to 7.6 trillion US dollars, and loans, only 5.1 trillion US dollars. Ratio of non-performing loans in commercial banks was only 2.4% and capital adequacy rate reached 12%, up by 3.7 percentage points over last year.

Thirdly, China has unique institutional advantages that enable us to mobilize resources to accomplish large undertakings and enjoys a harmonious and stable social environment. More importantly, after years of exploration in practice, China has set up a human-centered Scientific Outlook on Development, which focuses on all-round, coordinated and sustainable development. China will stick to the reform and opening up policy, and adhere to the mutual beneficial and win-win opening up strategy. Chinese people have strong will, unyielding spirit, and enduring vitality inherited from the long history of development, which have become even stronger in face of unusual difficulties.

Fourthly, the external environment remains largely unchanged. Seeking peace, development and cooperation is still an irreversible trend worldwide. The adjustments in international labor division also present new opportunities.

To summarize, we have the confidence, capability and favorable conditions to maintain stable and fast economic growth for a long period, attain the goal of building an all-round relatively well-off society by the year of 2020 and hit the ambitious target of basically achieving modernization by the mid of this century. In this process, UK and other nations enjoy good market prospects and cooperative opportunities from China’s growth and this also gives a strong boost to the world’s development.

Part III: China’s active participation in global efforts to tackle the global financial crisis.

Only when different countries share common vision, join hands and work closely together can we turn transform crisis into opportunity and realize shared development. Faced with enormous external difficulties, China has maintained the basic stability of RMB, actively participated in international trade financing programme, and stepped up bilateral, regional and multilateral trade cooperation. China has signed bilateral currency exchange agreements with many countries, totaled 95 billion US dollars, and reached consensus with relevant countries on 120 billion US dollars Asia Currency Reserve. We will try our best to provide assistance to African countries and other developing countries.

China has also actively coordinated macroeconomic polices with other members of the international community, conducted macroeconomic dialogues, pushed forward reform of international financial system. In February, Premier Wen Jiabao paid a visit to UK and other three European countries. In the beginning of April, President Hu Jintao attended G20 Summit in London and reached important consensus with Prime Minister Gordon Brown and leaders from other countries. In last month, China held high-level economic and trade dialogue with EU and the economic and financial dialogue with UK respectively, yielding many fruits. All of these will produce positive impact on regional and world economy.

Part IV: China’s unswerving pursuit of peaceful development, open development and cooperative development.

No one will be negatively affected or threatened by China’s growth and China will be a big country consistently pursuing peace and cooperation. “Harmony is the most precious thing.” With the long-standing traditional belief, China strives to build a harmonious world. China will achieve economic prosperity and social progress through civilized manner based on our people’s peace-loving tradition and this is also a great accomplishment of world development.

Currently, many problems and challenges call for sincere cooperation and an open attitude from all countries. For instance, in tackling climate change, we need to pursue a win-win strategy that both conducive to economic growth and solving of climate change problems. China is upholding the “common but differentiated responsibilities” as laid out by the UNFCCC. Developed countries and developing countries alike shall shoulder the responsibility of mitigation and adaptation. Nevertheless, developed countries must bear the responsibility of accumulated historical emission and current high per capita emission by taking the lead in emission reduction. In 2008, China’s total energy consumption was 2.85 billion tons of standard coal, ranking high in the world. However, China’s per capita consumption was only 2.15 tons, far lower than the average of 6 tons in developed countries and even lower than the world average level of 2.5 tons. Developing countries, with China included, shall grow their economy and eradicate poverty, which is their basic human right. Meanwhile, China is making its own contribution to actively enforce measures of adaptation and mitigation, in order to reduce emission as much as we can. For example, from 2006 to 2008, China’s energy used for per unit of GDP was down by 10%, saving about 300 million tons of standard coal and reducing carbon dioxide emission by 750 million tons. China closed a number of small coal fired power plants that were energy intensive and heavy polluting. The total closed capacity was 34 gigawatts, equivalent to half of UK’s total installed capacity. In the meantime, developed countries shall sincerely honor their commitments to provide capital and technology to developing countries. China is willing to strengthen its cooperation with UK and other countries in this regard and other important issues such as energy security, food security, etc.

In recent years, China and UK have strengthened trade ties and bilateral investment levels. UK is the largest investor to China among EU countries and the third largest trading partner with China. In 2008, bilateral trade reached nearly 46 billion US dollars, 4.6 times that of the year 2000. Accumulated investment made by UK to China was 16 billion US dollars. Meanwhile, investment made by Chinese enterprises to UK has also expanded fast. By the end of 2007, total investment in UK was 1 billion US dollars. Taking into account the 14 billion US dollars of the share-purchasing deal between Chinalco and Rio Tinto UK, the total investment was 15 billion US dollars. These figures show that the two countries are highly complementary. In a mutual beneficial and win-win spirit, we enjoy very good prospects to expand cooperation.

Ladies and Gentlemen,

Standing on a brand-new historical starting point, China and UK share a promising future with solid foundations for cooperation. UK is among the earliest countries to complete modernization, and enjoys a wealth of experience in economic growth, financial sector, environmental protection, new energy, etc. China hopes to enhance communication and cooperation with UK by learning UK’s experience, importing more advanced technologies and equipment. Many friends present here today have been committed to building the bridge of friendship and cooperation between the two countries. I sincerely hope that, with our joined efforts, we could further push forward the all-round strategic partnership, bring more benefits to the people of two great countries and contribute more to the world’s peace, development and progress!

Thanks a lot!