China Deepens Strategy of Domestic Demand Expansion in the Course of Reform and Opening-up

Resolutely ensure the progress of reforms in both major areas and key related areas

Development is the key to addressing all of China's problems. In order to develop, we must transform development patterns. However, to bring about this transformation, we must face up to the challenge posed by existing systems and mechanisms. In many areas, we cannot change or develop if we refuse to reform. China has now entered a period which is crucial to the reform. We are confronted by tough problems. We must carry out reforms with renewed determination and courage. We must better integrate development and reform and draw up comprehensive reform plans and measures. We should improve the overall reform plan, respect the initiatives of grassroots units and ordinary people, study and determine the concepts and policies related to reform and strive to make new breakthroughs in the field of reform.

We must also deepen price mechanism reforms. In a market economy, price operates as a signal for resource relocation and is a powerful means of altering market behaviors. China has made great strides in price reform, with the price of most products and services now determined by the market. However, in certain areas, such as energy resources, public projects and environmental protection charges, we are still faced with irrational pricing, which requires that we deepen the reform in this field. China is not rich in energy resources, but we still consume and waste a lot of energy. In 2010, our national coal output reached 3.24 billion tons, accounting for 48 percent of the global total; our national crude steel output reached 637 million tons, accounting for 45 percent of the global total. With our energy consumption for unit GDP being higher than the world average, we have become the world's No.1 energy consumer. We should be acutely aware that such an extensive growth mode is at odds with the aim of ensuring sustainable development. To tackle problems concerning resource environment, we must accelerate the decommissioning of outdated production capacity, curb the overheated growth of industries which rely on high energy consumption and high emissions, and exercise rational control over total energy consumption. However, in order to address the core issues, we must focus on reforming our systems and mechanisms. We should deepen the reform of the prices for resource products, and ensure that the relationship between the prices of coal, electricity, gasoline, gas, water, mineral products and other resources are correctly managed, along with ensuring that such prices accurately reflect the relationship between supply and demand, the scarcity of the resources and the cost of environmental damage. A good example of such management lies in the trial implementation of tiered pricing for household electricity, which puts equal emphasis on fairness and efficiency and promotes energy conservation and environmental protection. We must do the same with regard to the price reform of other resources. We should accelerate studies examining how such a system can be applied to water, natural gas and other products. In order for services to meet people' basic demands, we should keep sensible controls on prices. In order for services to meet their more complex demands, we should give the market more freedom to adjust prices. We must continue to improve the mechanism linking coal and electricity prices. Through these measures, we will be able to maintain steady economic development and promote energy conservation, emissions reductions and structural adjustment. We should ensure that we do not excessively target economic growth when implementing price reform, as this would lead to tension among different economic factors. We should focus on this issue, and ensure that our reform has sufficient room to take root.

In terms of deepening the reform of fiscal, taxation and financial systems, we should better integrate the reform of these systems with our efforts to main steady economic growth, adjust the economic structure and improve people's well-being. We should also accelerate the establishment of fiscal and taxation systems which favor the transformation of economic growth modes. Meanwhile, we should improve the financial system, enhance financial oversight, take precautions against financial risks and safeguard the stability and security of the financial market. First, we should adhere to the principle of acting in line with our financial capacity, further clarify the relationship between different levels of government with regard to financial distribution, increase the scale and proportion of general transfer payments and enhance county-level governments' financial capability to provide basic public services. Second, we should improve the system of creating, implementing and managing financial budgets and enhance the comprehensiveness and transparency of the budgets. Third, we should rationally adjust the coverage and rate of consumption tax, establish a method by which we can bring certain energy-inefficient, high-emission products into the scope of consumption tax; gradually expand the trial reform of real estate tax; develop plans to reform environmental protection taxes and charges, as well as other issues. Fourth, we should continue to deepen the reform of large state-owned financial institutions, vigorously promote the growth of small and medium-sized financial institutions, and foster the healthy development of the capital market, especially the bond market. We should also deepen the market-oriented reform of interest rates and the reform of the mechanism for setting exchange rates, orderly press ahead with making the Renminbi convertible under capital accounts and expand the cross-border use of the Renminbi.

In terms of deepening the reform of the investment system, enterprises are the central part of the market economy. They are also playing a leading role in both boosting domestic demand and adjusting the economic structure. We should ensure the correct handling of the relationship between government and enterprises and give full play to the decision-making power and initiative of enterprises. We should provide greater market access. We should carefully implement the "36 new rules" to encourage and channel nongovernmental investments, accelerate the study of policies which examine the breaking of monopolies, give equal market access and promote competition, and encourage private investment in such areas as railway, municipal public utilities, finance, energy resources and social programs. We should further reduce the number of investment areas which require special examination and approval. The government should only be responsible for the examination and approval of government investment projects and projects concerning national economic security, the overall economic situation and matters relating to resources. We should simplify examination procedures, standardize the approval process, enhance service supervision and foster an environment which is favorable for economic development.