The vessel of China's economy will break waves

In his passionate keynote speech, Premier Li used the unique platform of the Summer Davos Forum to address three major issues on China's role in the global economy: growth, innovation and global governance.

Growth. Li emphasizes that the Chinese economy is at a crucial stage in its transformation process aiming for medium to high sustained growth. Economic growth has slowed down from 7.9 percent in the last quarter of 2012 to 7.5 percent in the second quarter of 2013. Recently, there have been concerns about the negative growth in central government revenues. However, the Chinese government is determined to keep the macroeconomic framework despite the significant downward pressure on developing economies.

There are three scenarios for the Chinese economy: (a) an early slowing down of economic growth which will not allow China to join the developing nations in the predictable future but will keep China trapped in the middle income cluster, (b) a hard landing, and (c) and sustained medium to high growth.

China continues in its quest for steady economic progress. A holistic approach is needed; a short time stimulus policy will not address the underlying problems of a developing country.

China today aims to shift the growth model by structurally adjusting the economy, delegating power to lower levels, advancing reform and innovation, unleashing reform dividends, increasing domestic consumption in both urban and rural regions, and upgrading the Chinese economy. A special focus will be on manufacturing, the IT sector, agriculture, and the service sector.

China's focus remains on industrialization, urbanization, and the regional development of markets. Major concerns include increasing urban employment, stable inflation, and sufficient household income in rural areas to spread the fruits of reform to the whole of the Chinese population.

Recent changes in fiscal policy to achieve these goals include preferential tax treatment for small and medium sized companies, and increased spending on Southern and Western provinces. Li emphasizes that there will be no tightening of monetary policies in the near future.

Li underlines that the fast growth of the Chinese economy is a miracle in world economic history; even a sustained growth of 7 percent is still far higher than today's growth rates of other major economies; a slowing down of the Chinese economy appears only natural. China will remain the engine of the world economy.

Innovation. China is determined to meet the innovation imperative by aggressively promoting technological innovation to achieve higher quality and efficiency. Li underlines the government's intention to invest in energy conservation and environmental protection, improve shanty towns, as well as concentrate on the health sector, in particular on old age care, to improve the quality of life of the Chinese people.

Li calls for a mixed economy, by focusing on finance, oil, railway, telecom, resources, public utilities, the non-profit sector, and enterprises with varied ownership.

He encourages foreign companies to invest in China, as innovation is a banner that the Chinese will hold high to move away from its low-cost production growth model. Recently, Chinas has made good progress in improving the regulatory environment by streamlining its administration, increasing IP protections, and focussing on more corporate social responsibility among Chinese companies.

In a time of global economic recovery from the global financial crisis, he emphasis that it is a wise decision for multinationals to do business in China, a country hungry for innovation and progress.

Global governance. Li emphasizes China's leadership in a globalizing, multi-polar world in which no country can play Robinson Crusoe and live in isolation. In the coming years China is estimated to invest over $500 billion overseas and send 400 million tourists abroad. Li urges the international community to speed up reform in global governance as he believes that developing countries should have a greater voice in global governance.

For instance, China recently signed bilateral agreements with Iceland and Switzerland, and continues on improving its relationships with ASEAN countries.

As a major developing country, China aims to play a greater role in international affairs. China wants to share its experience in poverty reduction and help by providing international public goods, following a Chinese proverb: "A gentleman is always ready to help others to attain their roles." Nevertheless, one should not forget China remains a developing country; over 100 million people still live under the poverty line by international standards. China's responsibility must be in line with its development priorities.

The author an assistant professor at the Nottingham University Business School China.