Shoulder the Responsibilities of Our Time and Promote Global Growth Together*
January 17, 2017
President Doris Leuthard and Mr Roland Hausin,
Heads of state or government, and deputy heads of state,
Heads of international organizations,
Dr Klaus Schwab and Mrs Hilde Schwab,
Ladies and gentlemen,
I am delighted to come to beautiful Davos. Davos, though a small town in the Alps, is an important window for taking the pulse of the global economy. People from around the world come here to exchange ideas and insights, which broaden their vision. This makes the WEF annual meeting a cost-effective brainstorming event, which I would call "Schwab economics".
"It was the best of times, it was the worst of times."1 These are the words used by the English writer Charles Dickens to describe the world after the Industrial Revolution. Today, we also live in a world of contradictions. On the one hand, with growing material wealth and advances in science and technology, human civilization has developed as never before. On the other hand, frequent regional conflicts, and global challenges like terrorism, refugees, poverty, unemployment, and a widening income gap have all added to the uncertainties of the world.
Many people feel bewildered and ask themselves: What has gone wrong with the world?
To answer this question, one must first track the source of the problem. Some blame economic globalization for the chaos. Economic globalization was once viewed as the treasure cave found by Ali Baba in The Arabian Nights, but it has now become a Pandora's box in the eyes of many. The international community finds itself in a heated debate on economic globalization.
Today, I wish to address the global economy in the context of economic globalization.
The point I want to make is that many of the problems troubling the world are not caused by economic globalization. For instance, the refugee waves from the Middle East and North Africa in recent years have become a global concern. Several million people have been displaced, and some small children have lost their lives while crossing the rough sea. This is indeed heartbreaking. It is war, conflict and regional turbulence that have created this problem, and its solution lies in making peace, promoting reconciliation and restoring stability. The global financial crisis is another example. It is not an inevitable outcome of economic globalization; rather, it is the consequence of excessive pursuit of profit by financial capital and a grave failure of financial regulation. Simply blaming economic globalization for the world's problems is neither consistent with reality, nor helpful for finding solutions to the problems.
From the historical perspective, economic globalization is a result of growing social productivity, and a natural outcome of scientific and technological progress – not something created by any individuals or any countries. Economic globalization has powered global growth and facilitated movement of goods and capital, advances in science, technology and civilization, and interactions among peoples.
But we should also recognize that economic globalization is a double-edged sword. When the global economy is under downward pressure, it is hard to make the cake of global economy bigger. It may even shrink, which may cause conflicts between growth and distribution, between capital and labor, and between efficiency and equity. Both developed and developing countries have felt the pinch. Voices against globalization have exposed problems in the process of economic globalization that we need to take seriously.
As a line in an old Chinese poem goes, "Honey melons hang on bitter vines; sweet dates grow on thistles and thorns."2 In a philosophical sense, nothing is perfect in the world. Those who claim something is perfect because of its merits, or who view something as useless just because of its defects have failed to see the full picture. It is true that economic globalization has created new problems, but this is no justification to write it off altogether. Rather, we should adapt to and guide economic globalization, cushion its negative effects, and make it benefit all countries and all nations.
There was a time when China too had doubts about economic globalization, and was not sure whether it should join the World Trade Organization. But we came to the conclusion that integration with the global economy is a historical trend. To grow its economy, China must have the courage to swim in the vast ocean of the global market. Those who fear to face the storm and explore the new world will sooner or later drown in the ocean. Therefore, China took the bold step to embrace the global market. From time to time we have struggled to keep our heads above the water, and we have encountered whirlpools and choppy waves, but we have learned how to swim in this process. It has proved to be the right strategic choice.
Whether you like it or not, the global economy is the great ocean from which you cannot escape. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend.
The history of humanity tells us that problems are not to be feared. What should concern us is refusing to face up to problems and not knowing what to do about them. In the face of both the opportunities and challenges of economic globalization, the right thing to do is to seize every opportunity, jointly meet challenges and chart the right course for economic globalization.
At the APEC Economic Leaders' Meeting in late 2016, I spoke about the need to make the process of economic globalization more vigorous, more inclusive and more sustainable. We should be proactive and manage economic globalization appropriately so as to release its positive impact and keep the process in balance. We should follow the general trend, proceed from our respective national conditions, and embark on the right pathway of integrating with economic globalization at the right pace. We should strike a balance between efficiency and equity to ensure that different countries and different groups of people may all share the benefits of economic globalization. The people of all countries expect nothing less from us, and this is a responsibility we cannot shirk as leaders of our time.
Ladies and gentlemen,
At present, the most pressing task before us is to steer the global economy out of difficulty. The global economy has remained sluggish for quite some time. The gap between poor and rich and between North and South is widening. The root cause is that the three critical issues in the economic sphere have not been effectively addressed.
First, lack of robust driving forces for growth makes it difficult to sustain a steady growth of the global economy. Global economic growth is now at its slowest pace in seven years. Growth of global trade has been slower than global GDP growth. Short-term policy stimuli are ineffective. Fundamental structural reform is only beginning. The global economy is now in a period of moving towards new growth drivers, and the role of traditional engines to push growth has weakened. Despite the emergence of new technologies such as artificial intelligence and 3D printing, new sources of growth are yet to emerge. A new path for the global economy remains elusive.
Second, inadequate global economic governance makes it difficult to adapt to new developments in the global economy. Mme Christine Lagarde recently told me that emerging markets and developing countries already contribute 80 percent of the growth of the global economy. The global economic landscape has changed profoundly in the past few decades. However, the global governance system has not embraced those new changes and is therefore inadequate in terms of representation and inclusiveness. The global industrial landscape is changing and new industrial chains, value chains and supply chains are taking shape. However, trade and investment rules have not kept pace with these developments, resulting in acute problems such as closed mechanisms and fragmentation of rules. The global financial market needs to be more resilient against risks, but the global financial governance mechanism fails to meet the new requirements and is thus unable to effectively resolve problems such as excess international financial market volatility and the build-up of asset bubbles.
Third, uneven global development makes it difficult to meet people's expectations for better lives. Dr Schwab has observed in his book, The Fourth Industrial Revolution, that this round of industrial revolution will produce extensive and far-reaching impacts such as growing inequality, particularly the possible widening gap between return on capital and return on labor. The richest one percent of the world's population owns more wealth than the remaining 99 percent. Inequality in income distribution and uneven development space are worrying. Over 700 million people in the world are still living in extreme poverty. For many families, to have a warm house, adequate food and secure employment is still a distant dream. This is the biggest challenge facing the world today. It is also what is behind the social turmoil in some countries.
All this shows that there are indeed problems with world economic growth, governance and development models, and they must be resolved. Henry Dunant, the founder of the Red Cross, once said, "Our real enemy is not the neighboring country; it is hunger, poverty, ignorance, superstition and prejudice." We need to have the wisdom to dissect these problems; more importantly, we need to have the courage to take actions to address them.
First, we should develop a dynamic, innovation-driven growth model. The fundamental issue plaguing the global economy is the lack of driving force for growth. Innovation is the primary force leading development. Unlike the previous industrial revolutions, the fourth Industrial Revolution is unfolding at an exponential rather than linear rate. We need to chart a new course through innovation. Only with the courage to innovate and reform can we remove bottlenecks blocking global growth and development.
With this in mind, the G20 leaders reached an important consensus at the Hangzhou Summit, which is to take innovation as a key driver and foster a new driving force for growth for both individual countries and the global economy. We should develop new development concepts and go beyond the debate about whether there should be more fiscal stimulus or more monetary easing. We should adopt a multipronged, holistic approach to address both the symptoms and the underlying problems. We should adopt new policy instruments and advance structural reform to create more space for growth and sustain its momentum. We should develop new growth models and seize opportunities presented by the new round of industrial revolution and the digital economy. We should meet the challenges of climate change and aging population. We should also address the negative impact of IT and automation on jobs. When cultivating new industries, new business forms, and new business models, we should create new jobs and restore confidence and hope to our peoples.
Second, we should pursue a well-coordinated and inter-connected approach to develop a model of open and win-win cooperation. Today, mankind has become a close-knit community of shared future. Countries have extensive converging interests and are mutually dependent. All countries have the right to development. At the same time, they should view their own interests in a broader context and refrain from pursuing their interests at the expense of others.
We should commit ourselves to growing an open global economy, share opportunities and interests through opening up, and achieve win-win outcomes. We should not just retreat to the harbor when encountering a storm, for this will never get us to the other shore of the ocean. We must redouble our efforts to develop global connectivity to enable all countries to achieve inter-connected growth and share prosperity. We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening up, and say no to protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, the dark room will also block light and air. No one will emerge as a winner in a trade war.
Third, we should develop a model of fair and equitable governance in keeping with the trend of the times. As the Chinese saying goes, shrewd people of petty mind attend to trivial matters, while people with vision attend to the governance of institutions. There is a growing call from the international community for reforming the global economic governance system, which is a pressing task for us. Only when it adapts to new dynamics in the international economic architecture can the global governance system sustain global growth.
Countries, big or small, strong or weak, rich or poor, are all equal members of the international community. As such, they are entitled to participate in decision-making, enjoy rights, and fulfill obligations on an equal basis. Emerging markets and developing countries deserve greater representation and voice. The 2010 IMF quota reform has entered into force, and its momentum should be sustained. We should adhere to multilateralism and uphold the authority and efficacy of multilateral institutions. We should honor commitments and comply with rules. No one should select or bend rules as they see fit. The Paris Agreement is a hard-won achievement which is in keeping with the underlying trend of global development. All signatories should stick to it as this is a responsibility we must assume for future generations.
Fourth, we should develop a balanced, equitable and inclusive development model. As the Chinese saying goes, "When the Great Way rules, the land under Heaven belongs to the people."3 Development is ultimately for the people. To achieve more balanced development and ensure that the people have equal access to opportunities and to the benefits of development, it is crucial to have a sound development philosophy and model, and make development equitable, effective and balanced.
We should foster a culture that values diligence, frugality and enterprise, and respects the fruits of the hard work of all. Priority should be given to addressing poverty, unemployment, the widening income gap and the concerns of the disadvantaged to promote social equity and justice. It is important to protect the environment while pursuing economic and social progress so as to achieve harmony between humanity and nature and between humanity and society. The 2030 Agenda for Sustainable Development should be implemented to realize balanced development across the world.
A Chinese adage reads, "Victory is ensured when people pool their strength; success is secured when people put their heads together."4 As long as we keep to the goal of building a community of shared future for mankind and work hand in hand to fulfill our responsibilities and overcome difficulties, we will be able to create a better world and deliver better lives for our peoples.
Ladies and gentlemen,
China has become the world's second largest economy thanks to 38 years of reform and opening up. The right path leads to a bright future. China has come this far because under the leadership of the CPC, the Chinese people have blazed a development trail that suits China's actual conditions.
This is a path based on China's realities. China has in the past years succeeded in following the appropriate development path by drawing on both the wisdom of its civilization and the practices of other countries in both the East and West. In exploring this path, China has refused to remain insensitive to the changing times or to blindly follow in others' footsteps. All roads lead to Rome. No country should view its own development path as the only viable one, still less should it impose its own development path on others.
This is a path that puts people's interests first. China follows a people-oriented development philosophy and is committed to bettering the lives of its people. Development is of the people, by the people and for the people. China pursues the goal of common prosperity. We have taken major steps to alleviate poverty and lifted over 700 million people out of poverty, and good progress is being made in our efforts to build a society of moderate prosperity in all respects.
This is a path of reform and innovation. China has tackled difficulties and met challenges on its way forward through reform. China has demonstrated the courage to take on difficult issues, navigate treacherous rapids, and remove institutional and systemic hurdles standing in the way of development. These efforts have enabled us to unleash productivity and social vitality. Building on progress of these 30 years and more of reform, we have introduced more than 1,200 reform measures over the past four years, injecting powerful impetus into China's development.
This is a path of pursuing common development through opening up. China is committed to a fundamental policy of opening up and pursues a win-win opening-up strategy. China has promoted an interconnected development, both inward and outward; while developing itself, China has shared its fruit with other countries and peoples.
China's outstanding achievements and the vastly improved living standards of the Chinese people are a blessing to both China and the rest of the world. The achievements through development over the past decades are owed to the hard work and perseverance of the Chinese people, a quality that has defined the Chinese nation for several thousand years. We Chinese know only too well that no one in the world will give us a free ride. For a big country with over 1.3 billion people, development can be achieved only with the dedication and tireless efforts of its own people. We cannot expect others to deliver development to China, and no one is in a position to do so.
When assessing China's development, one should not only see what benefits the Chinese people have gained, but also how much hard effort they have put in; not just what China has achieved, but also what China has contributed to the world. Then one will reach a balanced conclusion about China's development.
Between 1950 and 2016, despite its modest level of development and living standards, China provided more than RMB400 billion of foreign assistance, undertook over 5,000 foreign assistance projects, including nearly 3,000 turn-key projects, and held over 11,000 training workshops in China for over 260,000 personnel from other developing countries. Since it launched reform and opening up, China has attracted over US$1.7 trillion of foreign investment and has made overseas investment totaling over US$1.2 trillion, making a huge contribution to global economic development. In the years following the outbreak of the global financial crisis, China contributed on average to over 30 percent of global growth every year. All these figures are among the highest in the world.
The figures speak for themselves. China's development is an opportunity for the world; China has not only benefited from economic globalization but also contributed to it. Rapid growth in China has been a sustained, powerful engine for global economic stability and expansion. The interconnected development of China and a large number of other countries has made the world economy more balanced. China's remarkable achievement in poverty reduction has contributed to more inclusive global growth. And China's continuous progress in reform and opening up has lent much momentum to an open world economy.
We Chinese know only too well what it takes to achieve prosperity, so we applaud the achievements of others and wish them a better future. We are not jealous of others' success; and we will not complain about others who have benefited so much from the great opportunities presented by China's development. We will open our arms to the people of other countries and welcome them aboard the express train of China's development.
Ladies and gentlemen,
I know you are all closely following China's economic development, and let me give you an update on the state of China's economy. Our economy has entered what we call a new normal, in which major changes are taking place in terms of growth rate, development model, economic structure and drivers of growth. But the economic fundamentals sustaining sound development remain unchanged.
Despite a sluggish global economy, China's economy is expected to grow by 6.7 percent in 2016, still one of the highest rates in the world. China's economy is far bigger in size than in the past, and the driving force behind it today could not be reached at the time when we had double-digit growth. Household consumption and the service sector have become the main drivers of growth. In the first three quarters of 2016, the added value of the tertiary industry made up 52.8 percent of GDP and domestic consumption contributed 71 percent of economic growth. Household incomes and employment have steadily risen, while per unit GDP energy consumption has continued to drop. Our efforts to pursue green development are paying off.
The Chinese economy faces certain downward pressure and many difficulties, including an acute mismatch between excess capacity and an upgrading demand structure, lack of internal drivers for growth, an accumulation of financial risks, and growing challenges in certain regions. We see these as temporary hardships that occur on the way forward. And the measures we have taken to address these problems are producing good results. We are firm in our resolve to forge ahead. China is the world's largest developing country with over 1.3 billion people, and their living standards are not yet high. But this reality also means China has enormous potential and space for development. Guided by the vision of innovative, coordinated, green, open and shared development, we will adapt to the new normal, stay ahead of the curve, and make coordinated efforts to maintain steady growth, accelerate reform, adjust economic structure, improve people's living standards and fend off risks. With these efforts, we aim to achieve medium-high rate of growth and upgrade the economy to the higher end of the value chain.
– China will strive to enhance the performance of economic growth. We will pursue supply-side structural reform as the general goal, shift the growth model, and upgrade the economic structure. We will continue to cut overcapacity, reduce inventory, deleverage financing, reduce costs, and strengthen weak links. We will foster new drivers of growth, develop an advanced manufacturing sector and upgrade the real economy. We will implement the Internet Plus action plan to boost effective demand and better meet the individualized and diverse needs of consumers. And we will do more to protect the ecosystem.
– China will boost market vitality to add new impetus to growth. We will intensify reform in priority areas and key links and enable the market to play a decisive role in resource allocation. Innovation will continue to feature prominently on our growth agenda. In pursuing the strategy of innovation-driven development, we will bolster the strategic emerging industries, apply new technologies and foster new business models to upgrade traditional industries; and we will boost new drivers of growth and revitalize traditional ones.
– China will foster an enabling and orderly environment for investment. We will ease market access for foreign investors, build high-standard pilot free trade zones, strengthen protection of property rights, and level the playing field to make China's market more transparent and better regulated. In the coming five years, China is expected to import US$8 trillion of goods, attract US$600 billion of foreign direct investment and make US$750 billion of outbound investment. Chinese tourists will make 700 million overseas visits. All this will create a bigger market, more capital, more products and more business opportunities for other countries. China's development will continue to offer opportunities to business communities in other countries. China will keep its doors wide open. An open door allows both other countries to access the Chinese market and China itself to integrate with the world. And we hope that other countries will also keep their doors open to Chinese investors and keep the playing field level for us.
– China will vigorously foster an environment of opening up for common development. We will advance the building of the Free Trade Area of the Asia-Pacific and negotiations on the Regional Comprehensive Economic Partnership to form a network of free trade arrangements that is oriented towards the wider world. China stands for concluding open, transparent and mutually beneficial regional free trade arrangements and opposes forming exclusive groups that are fragmented in nature. China has no intention of boosting its trade competitiveness by devaluing the Renminbi, still less will it launch a currency war.
More than three years ago, I proposed the Belt and Road Initiative. Since then, over 100 countries and international organizations have responded to it positively and supported the initiative. More than 40 countries and international organizations have signed cooperation agreements with China, and our circle of friends along the Belt and Road is growing larger. Chinese companies have made over US$50 billion of investment and launched a number of major projects in the countries along the routes, spurring the economic development of these countries, and creating many jobs locally. The Belt and Road Initiative originated in China, but it has benefitted countries well beyond its borders.
In May this year, China will host in Beijing the Belt and Road Forum for International Cooperation, which aims to discuss ways to boost cooperation, build cooperation platforms and share cooperation outcomes. The forum will also explore ways to address problems facing the global and regional economies, create fresh energy for pursuing interconnected development, and ensure that the Belt and Road Initiative delivers greater benefits to people of countries involved.
Ladies and gentlemen,
World history shows that the road of human civilization has never been a smooth one, and that humanity has made progress by surmounting difficulties. No difficulty, however daunting, will stop us from advancing. When encountering difficulties, we should not complain about ourselves, blame others, lose confidence or shirk our responsibilities. We should join hands and rise to the challenge. History is created by the brave. Let us boost confidence, take action and march arm-in-arm towards a bright future.
Thank you all.
* Keynote speech at the opening ceremony of the World Economic Forum 2017 in Davos, Switzerland.
1 Charles Dickens: A Tale of Two Cities. Charles Dickens (1812-1870) was a British author.
2 Shen Deqian: Origin of Ancient Poetry (Gu Shi Yuan). This is an anthology of ancient poems composed between the 21st century BC and AD 618. Shen Deqian (1673-1769) was a poet of the Qing Dynasty.
3 See note 11, p. 163.
4 Huai Nan Zi.
(Not to be republished for any commercial or other purposes.)