Professor Liu Mingkang spoke at an April 16 Atlantic Council event on Chinese social and economic reforms.

1. By Professor Liu Mingkang
China’s New Path Forward

2. 0
2
4
6
8
10
12
14
16
2001 2003 2005 2007 2009 2011 2013
GDP Growth Rate (%)
GDP yoy GDP qoq（saar）
Current Business Climate
GDP growth in
Q1, 2014: 7.3%E
Q4,2013: 8.0%
Q3, 2013: 8.3%
Q2, 2013: 7.3%
Q1, 2013: 7%
2
8%

3. 35
40
45
50
55
60
65
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
PMI
PMI（sa） PMI（non sa） Expansion Threshold
50.3
Current Business Climate
3
PMI in
Mar 2014: 50.3
Jan 2014: 50.6
Dec 2013: 50.9

4. -4
-2
0
2
4
6
8
10
2001 2003 2005 2007 2009 2011 2013
CPI Growth (% yoy)
CPI Core CPI
Current Business Climate
4
CPI growth in
Q1, 2014: 2.3%
Q4, 2014: 2.7%
Q1, 2013: 2.4%
2.4%

5. -30
-25
-20
-15
-10
-5
0
5
10
15
20
2001 2003 2005 2007 2009 2011 2013
PPI Growth (% yoy)
PPI（yoy） PPI（qoq，saar）
Current Business Climate
5
Q1,2014: -2.0%;
Q4,2013: -1.4%;
Q1, 2013: -1.7%

6. 0
200
400
600
800
1000
1200
1400
1600
2013 Q4 2014 Q1
Electricity Production (billion kWh)
-10
-5
0
5
10
15
20
25
30
2001 2003 2005 2007 2009 2011 2013
Electricity Production (% yoy growth)
Electricity Production
Q1 2014 levels are a
15% drop from Q4
2013
6
Current Business Climate
Electricity production growth rate:
Mar 2014: 7.8%
Dec 2013: 10.5%
Nov 2013: 9.5%

7. Current Business Climate
7
663 on Dec. 5, 2008 628 on Feb. 6, 2012 698 on Jan.2, 2013
• BDI fell to 1002 on April 11,
after a temporary rise in late
2013
• This is higher than the
historical low of 650 in 2012,
and 698 at the beginning of
2013

8. • Optimism remains, driven by expectations and substantive
plans for significant reforms. Despite the optimism, concerns
still remain.
• Top business challenges include rising labor costs,
inconsistent regulatory interpretation, shortage of skilled
labor (both general and managerial), as well as the
imbalanced eco-system.
Business Climate: Summary
8

9. • More flexibility in foreign exchange rate regime: daily RMB
trading band expands from 1% to 2%.
• Liberalization of all interest rates in China
• Quicken the pace to build an innovation-ecosystem, to
ensure that Chinese inventors and investors have access not
only to the world’s fastest-growing market, but also to
markets worldwide
• High deposit reserve ratio gives the central bank enough
room for monetary easing, whenever necessary
• Abundant and sustainable private savings, high foreign
exchange reserves, and further financial reforms help to
stabilize financial markets
Preparedness for Possible Shocks
9

10. Market Oriented Reform the Crux of
Stimulating the Potential Growth Engine
• Continued efforts in reducing government controls and
barriers, and for better market access
 i.e. 416 items of government approval requirements either abolished
or relaxed in 2013
 Over 200 items will be further re-examined, rescinded in 2014
• Re-examination of the justifiability of those rules, laws, and
fiscal, credit, foreign exchange policies aimed at incentivizing
or de-incentivizing certain industries and localities, which
distort the market mechanism
• All the reforms are expected to be phased within the next 2
to 3 years and a transparent negative list approach will be
adopted accordingly, helping the market determine resource
allocation 10

11. Consensus Reached Regarding Ownership
and Property Rights Protection Issues
• The 3rd Plenum of the 18th Party Congress stressed the
importance of protecting property rights of non-SOEs
• Mixed ownership will be introduced to realize the retreat of
SOEs, among other structural initiatives
• To create an innovative ecosystem that grants sufficient and
equal protection to both domestically owned firms and
foreign firms
 Ensuring investor access to the world’s fastest-growing market and to
the best technologies and talents, regardless of country of origin.
 If the China (Shanghai) Pilot Free Trade Zone runs successfully,
practices will be copied to other parts of the country.
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12. To Build a Transparent Fiscal Regime
• All sources of government incomes and expenditures will be
budgeted
• Set up local government financing mechanisms under which
local governments shall regularly disclose their balance
sheets by rules and/or laws
 Redefine division of responsibilities between central and local
governments
 These resulting in a clearer division of resources
 Risks from by local government debt still under control
 Local government debt grew fast, but growth speed starting to
decline from 2013.
 About RMB 20 trillion in 2013, vz. 10.7 trillion in 2011.
 20% of local governments (mostly county level) indebted over 100%
of GDP
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13. Effective Prevention of Systemic, Regional
Financial Crises (1)
• Financial regulation is improving
– Basel III and Solvency II are being firmly implemented in China.
– Bitcoin related transactions are prohibited by the authorities, i.e. PBOC,
CBRC, CSRC, CIRC and MIIT(Ministry of Industry and Information
Technology);
– Ordinance No. 107 issued by State Council on shadow banking
• Clearer definition
• Clearer regulatory and supervisory responsibilities
• Stricter transparency and disclosure requirements
– Stricter regulation on safety and soundness of third party payment operators
• Financial reform is deepening
– In the next 3-5 years, more efforts will be made to build a more sustainable,
more friendly, more resilient financial system
– This includes institutions to evaluate credit and financial standings
13

14. Effective Prevention of Systemic, Regional
Financial Crises (2)
• The practice of ‘rigid responsibility of repayment’ and ‘zero
default’ rule is being broken.
• Prudent treatment towards mobile internet financing
• Create a government-sanctioned body that can collect and
supply credit standing and universal standing information of
any individuals and institutions for domestic and
multinational service providers, to improve rule of law and
reduce risks
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15. New Urbanization Must be People
Oriented
• Recently, it has been clearly stated that people are at the
core of the new urbanization
– Adaptive city programing in line with local specifics
– Ensure consistency of city programming, regardless of changing of
government officials
– Differentiated polices between big, medium and small cities
– More attention being paid to reform the Hukou system (household
and residence registration system), equal employment opportunities,
housing, young generation education, integration of different ethnic
minorities, etc., the nation and society
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16. Political and Social Agenda (1)
• The nation, the society and the government are expected to
do better in the rule of law
– 3rd Plenum of the 18th party congress set the tone that China needs to
build up its nation, society and government under the rule of law
– Economic maturity brings new sets of legal challenges to China,
which the government, businesses and citizens must be determined
to address
– The whole reform process must be ensured on track of rule of law
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17. Political and Social Agenda (2)
• Before building a creditable society, a creditable government
must be in place
– The unprecedented in-depth anti-corruption movement reveals the
dedication of the new Chinese leadership in building a creditable
society and government, and to restore public trust
– Revealed corruption cases increasingly show that transparency is the
best the cure of corruption. Rule of law, not rule by person, are the
most reliable measures to protect the government from corruption
– The public oversight is an effective way of containing corruption
• From the end of 3rd Plenum of the 18th party congress, 31 corruption cases
involving ministerial level officials were investigated and 20 were disclosed
• 46% of corruption investigations initiated by public whistleblowing
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18. Political and Social Agenda (3)
• Promoting solidarity of ethnic minorities with the majority
and preserving the interests of religious groups
– China is a nation in which the Han majority and over 55 ethnic
minorities live together
– Chinese government is committed to preserving social solidarity,
stability and unity of the nation, and aims to share the fruits of
development equally among all ethnic communities
– Neither authoritarian nor extremist policies will be appropriate for the
Chinese government
– Religious groups’ rights should be seriously protected
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19. Frequent Smog Has Seriously Affected
Social Stability, Brought Bad Reputation
• For the first time, the Chinese government promises to
attach equal importance to fighting against pollution as
fighting against poverty. Violations of anti-pollution laws will
be punished seriously
• Making efforts to minimize energy consumption, pollutant
emission, enhance energy consumption efficiency, and
protecting drinking water sources by means of:
– Better standards and better implementation
– Cooperation and coordination among government agencies and
across regions
– Taxing carbon emissions and other pollutants, or setting up carbon
emission trading exchanges
– Provide regional transparent targets to reduce pollution
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20. Hunger for a Greener, Lower Carbon
Emission Society
• Government should play a key role in fighting against
pollution and over-capacity in industries
• Government’s performance evaluation indicators should be
changed so as to provide the right incentives
• Holistic approaches, including legal, administrative, taxation
measures and market transaction mechanisms might be
adopted to deal with pollution and over-capacity issues:
– Carbon tax
– Resource tax
– Carbon emission trading system, such as exchanges
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21. China is Forming a New View on Food
Supply Security
• Sufficient and secure food supply
– In the next 10 years, greater inputs in cleaner soil, cleaner
water, greener agriculture, and safe food
• Naturally, there will be more debates on the security of
genetically-modified (GM) foods, transfer of rural and
farmers’ land, and the de-farmeration of farmers.
• Debates on these issues might be helpful in improving
people’s livelihoods and stimulating balanced standards
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22. China is Ready to Contribute to
Addressing these Problems
• Though it’s late, the concept of ecological civilization and
green life is getting known by Chinese, but still challenging
• It is vital for China and US to cooperate in changing the
current model of energy production and consumption,
developing clean energy technology, sharing experiences in
improving governance and building a market infrastructure
for cleaner energy
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23. China’s Emissions are High, but Falling
A table of China’s thermal power emissions
Smoke and Dust
Year Emissions from Thermal Power Generation
Total National
Emissions
(10,000 tons)
Emissions from
Industry
(10,000 tons)
Total Emissions
(10,000 tons)
As % of Total
National
Emissions
As % of
Industrial
Emissions
2010 1277.8 1051.9 160 12.5% 15.2
2011 1278.8 1100.9 155 12.1% 14.1
2012 1234.3 1029.3 151 12.2% 14.7
US 2012 443
EU 2012 487
Sulphur Dioxide (SO2)
Year Emissions from Thermal Power Generation
Total National
Emissions
(10,000 tons)
Emissions from
Industry (10,000
tons)
Total Emissions
(10,000 tons)
As % of Total
National
Emissions
As % of Industrial
Emissions
2010 2185.1 1864.4 926 42.4 49.7
2011 2217.9 2017.2 913 41.2 45.3
2012 2117.6 1911.7 883 41.7 46.2
US 2012 562 60 335 60 558
EU 2012 458 109.2 265* 58 243
Nitrogen Oxides (NOx)
Year Emissions from Thermal Power Generation
Total National
Emissions
(10,000 tons)
Emissions from
Industry (10,000
tons)
Total Emissions
(10,000 tons)
As % of Total
National
Emissions
As % of Industrial
Emissions
2010 - - 950 - -
2011 2404.3 1729.7 1003 41.7 58.0
2012 2337.8 1658.1 948 40.6 57.2
US 2012 1116 118.4 156 14 132
EU 2012 884 132.6 198.9 22.5 150
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*Includes data for Sox
Source: EPA Emissions Tracking Highlights,
National Sulfur Dioxide Emissions, National
Nitrogen Oxide Emissions
EEA SulphurDioxide Emissions Assessment,
Nitrogen Oxide Emissions Assessment

24. 1. Investment in clean energy and technology
Some Positive Outlooks for China (1)
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25. Some Positive Outlooks for China (2)
2. Water, food and beverage markets
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26. Some Positive Outlooks for China (3)
3. Urban planning, design, construction and
management
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27. Some Positive Outlooks for China (4)
4. Financial services and innovation
5. Breakthroughs in healthcare, nursing and population policy
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28. Some Positive Outlooks for China (5)
6. Media and entertainment
* Includes Algeria, Monaco, Morocco, Tunisia
Source: Motion Picture Association of America Theatrical Market Statistics 2012, 2013
$2.4bn (0% YOY)
$3.6bn (+50% YOY)
$10.9bn (+1% YOY)
0 2 4 6 8 10 12
Germany
South Korea
Russia
India
France*
Japan
China
US & Canada
2012-3 Box Office Revenue (USD bn)2012 2013
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• China is the second largest, and
fastest growing movie market
• 50% annual growth between
2012-3

29. Conclusion
• China is now a middle income country with relatively
advanced technology and the second largest GDP in the
world.
• Double digit GDP growth rate is no longer possible or
desirable, but medium- and long-term potential remains
strategically central to our most stakeholders, US in
particular.
• To obtain new strategies and knowledge to improve China’s
sustainable economic growth, we are ready to work closer
with our friends at this end to addressing our problems and
tapping our opportunities and ensuring China’s dreams are
realized.
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30. Thank You!
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