Chinese Premier Li Keqiang gives a speech Wednesday during the opening ceremony of the second session of the 12th National People's Congress in the Great Hall of the People in Beijing. Photo: AFP

Chinese Premier Li Keqiang reiterated the importance of reducing government interference and making the economy more market-oriented when he delivered the State Council's work report at the opening ceremony of the ongoing second session of the 12th National People's Congress Wednesday.

In Li's first government work report, he said the State Council's major tasks in 2014 include further carrying out fiscal and tax reform, promoting the development of the Internet finance sector, and encouraging private investment.

The 58-year-old premier, who took office on March 15, 2013, has been widely praised for his work by media commentators and analysts during the past year.

Li's set of economic principles was described by analysts at Barclays Capital as "Likonomics," noting his call for reduced government investment, deleveraging and economic structural reform. The term has been widely cited by domestic and foreign media outlets, but Li has not openly commented on it.

Less interference

Li has been calling for a freer economy and lower government interference since he took office.

"When the economy is heading down, it is a proper method to use short-term stimulus to boost growth. But after considering the pros and cons, we do not think this will solve the problem fundamentally," Li said at the World Economic Forum, also known as the Summer Davos, which was held in Dalian, Northeast China's Liaoning Province in September 2013.

"So we chose to use a strategy that could benefit both the current and future situations, and also to keep the macroeconomic strategy stabilized," he said.

China saw slowing economic growth in 2013. The country's GDP grew by 7.7 percent in the first quarter and by 7.5 percent in the second quarter. Both figures were below market expectations, the 21st Century Business Herald reported Wednesday.

The slow growth worried many economists and analysts around the world, with some predicting that China's economy may experience a "hard landing."

Amid pressure to find ways of sustaining China's economic growth, some called for more stimulus. Some suggested that Li should launch a similar version of the massive stimulus package created in 2008 to ward off the effects of the global financial crisis.

But Li resisted these calls. Instead, he warned Chinesebusinesspeople that they needed to obey the market's rules, and stop relying on the government.

On June 19, 2013, the State Council said in its regular meeting that China would "stick with and make good use of a stable monetary policy, and keep an appropriate money supply."

A day after the meeting, the Shanghai interbank offered rate rose sharply and the overnight repo rate reached as high as 30 percent, 10 times the normal level. It was considered to be one of China's most severe cash squeezes of recent years, but the central bank did not immediately inject capital to calm the market.

The liquidity crunch reportedly killed the assumption among financial institutions that the central bank and the State Council would always lend a hand to prevent a serious cash shortage from happening. It was also considered a landmark representation of Li's hands-off general economic policy, the 21st Century Business Herald report said.

Lower GDP is OK

China achieved an annual GDP growth rate of 7.7 percent in 2013, the same as in 2012 but lower than in previous years. Many were worried about the lower growth, but Li appeared less concerned.

Li said at a conference in Switzerland on May 24, 2013 that "as long as China's GDP grows by 6.9 percent in the next seven years, it will be enough," the China News Service reported.

Li's economic policies are not solely focused on GDP growth, the 21st Century Business Herald said, but are more concerned about the overall health of the economy.

On October 21, 2013, Li said at a conference that "the floor growth rate for China's GDP is 7.5 percent, at least 9 million more people need to be employed in urban areas, and the price of consumer products cannot grow by more than 3.5 percent," Hong Kong-based newspaper Ta Kung Pao reported.

Back in 2007, when Li was the secretary of the Communist Party of China Liaoning Province Committee, he said that GDP growth was not a perfect way to measure the performance of the economy. He suggested monitoring economic progress by taking power consumption, rail freight and lending as the main criteria.

This new way to measure economic development was dubbed the "Keqiang Index" by the Economist in 2010.

The Keqiang Index was considered to be a more objective measure than GDP, according to analysts the Global Times interviewed last July, because it was removed from local governments' focus on GDP and could not be so easily manipulated.

Restructuring on the way

Li, as a supporter of more market vitality, less government interference, a lower tax burden and more private lending, has been trying to include these elements in the restructuring of China's economy.

"Projects in industries such as steel and cement have to be inspected and approved, but that has not been done well in recent years, which has led to serious overcapacity," Li said at a teleconference about the change in the State Council's functions on May 15, 2013.

"In comparison, electronic devices, clothing and other industries have been market-based for a long time, so [the projects] do not have to be inspected by the government. There would not be severe overcapacity since the market decides the winners and losers," he said.

Out of the 39 regular meetings of the State Council in 2013, six of them were about or related to canceling or reducing the government's administration and evaluation activities, the 21st Century Business Herald reported.

"This is taking the power away [from the governments], this is launching a revolution against ourselves, this will hurt, and it will feel like cutting a wrist. But it is needed for development, and the public wants it," the premier said at a press conference during the first session of the 12th National People's Congress in March 2013.

Global Times - The 21st Century Business Herald