China's government promised sweeping reforms Wednesday to promote sustainable growth in its slowing economy by opening state-dominated industries to private investment, making its banks more market-oriented and encouraging consumer spending.
In his first annual policy speech as China's top economic official, Premier Li Keqiang said Beijing will encourage competition, ease exchange rate controls and improve access to credit for productive businesses.
Li's pledges were in line with Communist Party plans issued in November that call for promoting market forces and domestic consumption to replace a model based on exports and investment that delivered three decades of explosive growth but has run out of steam.
"We need to make sure the market plays a decisive role," said Li in a nationally televised speech to China's ceremonial legislature. He promised to "break mental shackles and vested interests" — a reference to possible resistance from state companies that might lose subsidies and monopolies.
Entrepreneurs and investors are watching the annual meeting of the National People's Congress for details of how the party will carry out its November pledge. Beijing has issued a flurry of minor changes such as simplifying processes for registering new businesses but has yet to take action on major tasks such as overhauling the state-run banking system.
Despite pledges of reform, the ruling party made clear the limits to possible change in its November plan by declaring that state ownership will remain the core of the economy.
The changes come as the ruling party tries to steer China to cleaner, more energy-efficient growth based on service industries and technology following the past decade's blistering expansion.
Growth last year tumbled to a two-decade low of 7.7 percent, due largely to government curbs imposed to cool a lending and investment boom. It was barely half of 2007's explosive 14.2 percent rate.
Li announced an official growth target of 7.5 percent for this year. That was unchanged from last year's target and in line with growth forecasts by the International Monetary Fund and private sector analysts.
Li promised an array of changes in banking and finance that reform advocates say are essential to making the economy more efficient and productive.
Banks will be given more control over lending and interest rates, the premier said. That would allow profitable companies to compete for credit by paying higher rates, possibly channeling more money to entrepreneurs who generate most of China's new jobs and wealth but are mostly unable to get loans from the state-run system. It also might boost rates paid on savings, putting more money in the pockets of Chinese families and encouraging consumer spending.
The premier also threw the government's support behind the growth of popular new Internet-based banking services, promising to promote their "healthy development."
Services such as one launched by e-commerce giant Alibaba Group have drawn billions of dollars in deposits from small savers by paying higher rates than state banks. Critics see them as a threat to the government-run financial system that supports politically favored companies. A commentator for state television last month called them "financial parasites."
Li promised to open state-controlled industries such as banking, oil, power generation, railways and telecommunications to private investment. He pledged to "level the playing field" for Chinese and foreign companies to promote competition.
The premier gave no details about key issues such as whether private investors would gain any management control in state-run industries. That is in line with China's time-tested reform strategy under which thegovernment experiments with reforms in a single city or province and studies the results before crafting detailed rules for rolling out changes nationwide.
Beijing will make domestic demand "the main engine driving growth," Li said. He promised to promote consumer spending by raising incomes and encourage growth of service industries such as education, tourism and care for the elderly, the premier said.
"We will enhance people's ability to consume," said Li.
In a separate report, the Cabinet planning agency, the National Development and Reform Commission, promised to experiment with a change sought by business groups to simplify investment — a "negative list" of fields that are off-limits, leaving all others open. That would overturn a system under which investors must wait for each industry or line of business to be declared open to private competition, which companies say fails to keep pace with changes in technology and markets.
The premier also promised to make progress in the ruling party's marathon campaign to reduce excess production capacity in industries including steel, cement and solar panel manufacturing.
That glut has led to price-cutting wars and bankruptcies. But efforts to scrap excess capacity face resistance from politically influential companies and local leaders who want the jobs and tax revenue brought by new factories.