Premier Li talks with WEF chief and business leaders at 2016 Summer Davos Forum (2)

Feike Sijbesma, Chairman and CEO of Royal DSM: Premier Li, in recent years, the Chinese government has made vigorous efforts to pursue structural reform, including reforms of the SOEs and functions in the government, and cut in taxes and fees, etc. Could you share with us the priorities in those structural reforms and the progress China is making?

Li Keqiang: Before answering your question, I want to first express my high appreciation to the World Economic Forum for forging such a close partnership with the Chinese side. I'm also very happy to meet friends here, both old and new.

In recent years, the Chinese government has made hard efforts in advancing all-round reform to create the necessary conditions for structural reforms and use structural reform in return to underpin sustained and steady economic growth. We want to maintain balance between steady growth and structural adjustment. What happened in the past couple of years has shown that the Chinese government has not resorted to massive stimulus measures. Instead, we have focused on structural reforms, especially supply-side structural reforms to bring out the creativity of each and every individual and potential of the market. These efforts have improved China's economic structure and supported a medium-high growth of the economy.

In pursuing structural reforms, especially supply-side structural reforms, we have focused on streamlining administration, delegating government power and lifting the undue restrictions on companies and the market. In particular, we have reformed the corporate registration system and investment review system. As a result, in the last couple of years, as many as 40,000 new market entities get registered on an average daily basis. They have given strong boost to employment. Over 13 million urban jobs are added annually. All efforts for maintaining steady economic growth are aimed at ensuring employment.

The endeavor of streamlining administration and delegating power and encouragement of mass entrepreneurship and innovation have also contributed to the improvement of the economic structure. In this process, micro businesses and SMEs have been the largest contributor of new jobs, and made the service sector the biggest sector in the economy. Consumption has been on the rise, fast yet steady, and it has exceeded investment in terms of contribution to GDP growth. All these have made positive impacts on China's economic structure.

Second, we have introduced significant tax cuts and eliminated the undue administrative fees. This has opened up broad space for companies, especially emerging companies, to grow. The activity rate of newly registered companies this year is higher than last year, standing at above 70%. Our policies have paid off.

Third, we have continued to reform SOEs, including large SOEs, to make them leaner but healthier and to ensure that they focus on main businesses, cut the excessive tiers of management and introduce mixed ownership in order to enhance their core competitiveness. We are creating conditions and the environment for SOEs and private companies to compete as equals on a level playing field. This in itself is an effort of structural reform.

In one word, reform is the fundamental driving force for China's economic development, and we will stay firm on this course.

Matthew Prince, CEO of CloudFlare: Premier Li, thank you for meeting with us today. My company is investing in cloud computing infrastructure across China with our partner Baidu. I appreciate your statement in the special address on the importance of cloud to China. My question is about China's strategy to upgrade its manufacturing industry and boost its Internet development, specifically the Made in China 2025 and Internet+ initiatives. What will be the impact of these initiatives? What will be the Chinese government's next priorities in these areas?

Li Keqiang: China is the world's largest developing country and a country that is still in the process of industrialization. The manufacturing sector is still of fundamental importance to China's development. The priority now is to transform and upgrade the manufacturing sector from low-medium to medium-high level. Hence we introduced the Made in China 2025 and Internet+ action plan, which have much commonality with the theme of this year's forum - the fourth industrial revolution.

First, the Made in China 2025 and Internet+ initiatives are inseparable. To upgrade China's manufacturing sector and elevate China's 200+ industrial products, the output of which is the largest in the world, to a new level, we need to rely on the Internet, cloud computing, big data and other technologies to make China's manufacturing smarter and more digitized.

Second, in upgrading China's manufacturing sector, we need to use the Internet+ to pool intellect and resources globally to offer solutions to various problems. In my special address yesterday, I gave the example of a local Tianjin company of cloud computing which serves the manufacturing sector. I hope that CloudFlare will not just work with big companies like Baidu, but also consider partnering with new growth cloud computing companies in China.

Third, in upgrading the manufacturing sector, we must be highly responsive to the market changes. China is already a middle-income country. The middle-income class has diverse needs, so we must ensure that the manufacturing sector is customized and suited to customers' individual needs. We need to use the Internet to get a better feeling of their needs and make our products accordingly. There is also need for interactions with customers, and this will open up a broader market for the manufacturing sector and integrate products with services. We live at a time of fast changing market demands and a time when the potential of each individual can be brought out through mass entrepreneurship and innovation and Internet+. This presents a challenge to the manufacturing sector, but more importantly, an opportunity.

Klaus Kleinfeld, Chairman and CEO of ALCOA: Thank you for taking the time. I have a question that goes on the "cloud" to the heavy industry that sometimes produces a lot of clouds. You and your administration have been very clear in addressing the issue of overcapacity. This has also caused a lot of media and international attention. As China is taking massive actions to address the issue, how are you going to deal with the economic and social impact of the changes?

Li Keqiang: Just now we discussed the "cloud" floating in the sky. Now we need to turn our attention to the traditional heavy industries standing on the ground. But the truth is a close link is already taking shape between these two. Cloud computing is playing a greater role in transforming and upgrading traditional industries by collecting and analyzing massive data to find new pathways to renovate and upgrade traditional industries. And traditional industries are one of the basis for the birth and growth of cloud computing.

Heavy industry is a traditional industry. We must not turn our back on heavy industries. Without heavy industries, where do we get the materials for the cell phones and other products? What we are doing now is to cut the excess and backward capacity in heavy industries. Such excess capacity is the result of the sluggish global economic recovery and anemic growth of global trade, so it's a global issue that requires a global solution.

There is excess capacity in some sectors in China. In recent years, we have taken strong steps to phase out overcapacity. We are firm in our determination to carry on with this effort, not only to meet our domestic need, but also to do what we should for the international community as a responsible major country. I want to emphasize that China's heavy industry capacity is mainly oriented toward the domestic market, not for large exports. Exports both last year and in the first five months of this year declined.

We are now working hard to phase out the excess capacity of steel and coal. In the next few years, we plan to eliminate 100-150 million tons of excess steel capacity and 800 million tons of coal-making capacity, involving the employment of some two million people. Yet it is encouraging that with mass entrepreneurship and innovation, new industries and new forms of business have flourished and added more jobs than we expected, so we are able to ensure that the affected workers will not lose their job but will get re-employed. The central government has allocated 100 billion yuan for this purpose, and asked local governments to come up with matching funds for the re-employment and re-settlement of affected workers.

In carrying out this task, we need to be firm in the resolve, and follow a market-driven and law-based approach. We will enforce stricter environmental, safety and product quality standards to meet our goal. No doubt, the legal rights and interests of workers will be protected in this process. This is not just the responsibility of the Chinese government. I believe you all have a strong awareness of fulfilling corporate social responsibilities in your business operations. (mo