(Tianjin, China, September 13, 2010)

On September 13, 2010, Chinese Premier Wen Jiabao attended the opening ceremony of the fourth Summer Davos Forum and the entrepreneurs' workshop and answered questions form Executive Chairman of the World Economic Forum Klaus Schwab and various entrepreneurs. The questions and answers were:

Q: China's GDP grew by 9.1 percent in 2009 and by 11.1 percent in the first half of this year. China has become one of the fastest growing economies in the world. But some people say there is a gap between the growth rate of the economy and the improvement of people's living standards. What is your view? How can the wealth created by China's GDP growth better benefit the people?

A: The Chinese Government is indeed concerned about the question you asked. First, we should recognize people's lives are being improved gradually with the growth of the Chinese economy. From 2007 to 2009, the actual annual wage income of workers increased by nearly 12 percent, two percentage points higher than the GDP growth rate. The urban per-capital disposable income increased by 9.1 percent and rural per-capita net income grew by 8.2 percent per annum. The improvement in people's lives is obvious to all. In addition to the wage income, secondary distribution of income, or our expenditure on social security, culture, education and healthcare of the people is scheduled to be 800 billion yuan this year.

Second, we must realize clearly China is still a developing country and we are still in a special development stage. Therefore, we should follow the principle of "subsistence first and development second." What we are doing today aims at improving people's lives tomorrow. It is very necessary to increase input in this regard.

Thirdly, we must carefully solve the problem of social fairness and justice or, to put it in another way, gradually increase two "proportions." First, increasing the proportion of labor remuneration in primary distribution and second, raising the proportion of income of residents in national income. These two proportions reflect social fairness and justice. We should not only make the cake big but also distribute the cake fairly.

A serious problem we now face now is the unfair distribution of income in society. Some people have excessive income while a large number of people still live under the poverty line. We must take strong measures, including fiscal and tax reform as well as income distribution reform, to change the unfair income distribution step by step. This serves as an important basis to promote social fairness and justice, and maintain social stability.

No one can deny the huge changes in the Chinese people's lives which have taken place over more than 30 years since reform and opening up. We have lifted more than 200 million of our population out of poverty. But we shall not deny the indeed relatively serious problem of the gap between the rich and poor despite the general improvement in people's livelihoods. If wealth is controlled in the hands of the minority, the majority of people will unavoidably become poor, which will lead to social instability. We must keep a clear mind about that.

It is our ultimate target of economic development to enhance the material and cultural living standards of all Chinese people. And it reflects the conscience of our government to narrow the distribution gap and achieve social fairness and justice.

Q: The Chinese Government successfully created the model of driving economic growth by "Made in China" during the past 30 plus years. In the future, China might need to develop a new economic growth model through "Created by China" and "Served by China." What are your views on the development of these new economic development models?

A: You have pointed out the key issue of changing the growth model of the Chinese economy and it is also a critical issue of maintaining balanced, coordinated and sustainable growth of the Chinese economy.

We are experiencing the stage of "Made in China" which is an indispensable part of the development process. But I sometimes feel sad about that. The majority of profit from products China exports to foreign countries is taken away by foreign companies. One of the important reasons is branding. A foreign brand can sell a pair of men's socks at US$8, but the Chinese company only get US$1. The shift from "Made in China" to "Created by China" requires technological innovation, application of human wisdom and capacity, and changing the development mode.

We will make efforts in three areas. First of all, developing science, technology and education. During the eight years since I became Premier, three plans have been formulated: the Medium and Long-term Development Plan for Education, the Medium and Long-term Development Plan for Science and Technology and the Medium and Long-term Development Plan of Talent. These three plans form the foundation of the shift towards "Created by China."

Second, we will transform traditional industries with new and high-end technologies. We have many traditional industries which need to be transformed. It is a pressing task and in the process of transformation there will emerge many products labelled "Created by China," "Standards of China" and "Brands of China."

Thirdly, developing strategic emerging industries. We have identified seven of these, including energy conservation and environmental protection, information and high-end manufacturing, among which we have selected several priority sectors. We must try our best to build world leadership in those sectors. We have both the determination and the ability.

The development of service industry mirrors the economic structure, especially the structure of primary, secondary and tertiary industries. We must boost the development of the service industry, especially the service sectors closely linked with production activities – as well as the public and financial service sectors.

I'd like to draw the attention of entrepreneurs to two areas where the development of the Chinese service industry enjoys huge potential. The first one is that the progress of industrialization and urbanization contains tremendous potential for the service industry and the second one is the development of public undertakings, such as education, health and medical care.

I'd like to stress one point: China's industrialization and urbanization process will never be achieved at the cost of agriculture. The modernization of agriculture will definitely boost the development of the rural service industry, which also contains further great potential.

Q: The Chinese Government announced the target of reducing carbon emissions intensity and launched a number of policies and measures before the Copenhagen conference last year. But, in the first half of this year, China's unit GDP energy consumption increased instead of decreasing. This will make it more difficult for China to achieve the targets of energy conservation and emissions reduction defined in the 11th five-year plan. What measures will the Chinese Government adopt in order to achieve its target of emissions reduction?

A: You just asked a question which is a big concern to me. Our unit GDP energy consumption dropped by 15.6 percent in the previous four years, but our plan is to reduce it by about 20 percent in five years. In the first quarter of this year, unit GDP energy consumption did not fall but went up. The reason is the blind development of high energy consuming industries in the process of economic recovery. We have realized this issue relatively early and adopted countermeasures. Therefore, unit GDP energy consumption stopped increasing and started dropping in the first half of this year. However, we indeed face quite big difficulties in achieving the targets set in the 11th five-year plan.

We have established the target of reducing the number of high-energy consuming enterprises in the latter half of this year, including eliminating small thermal power plants, small iron and steel mills and small cement plants. We will achieve these targets even at the cost of a slowing GDP growth rate. Of course, we have to deal with this problem realistically to avoid making this work a mere formality or falsification. I will give an account to the National People's Congress, and the whole world as well in March, next year. I don't know what the result will be, but I believe I will make all possible efforts a responsible government should make.

Q: China's population urbanization rate keeps growing and is accompanied by an even faster land urbanization rate. Today per capita comprehensive land area in Chinese cities has reached 110-130 square meters through various measures including the reuse of rural land, and even arable land. Some people say such a policy of accelerating urbanization rate is unsustainable. What is your response?

A: China's urbanization rate at present is about 46 percent, but the land urbanization rate has actually outstripped the population urbanization rate over these years. In order to grow, some small and medium-sized cities, and even some large cities, ignored their realities, fell over themselves for wide roads and large squares and occupied a great deal of farmland. Original suburban farmland and vegetable plots in many cities have disappeared, and we should pay a great deal of attention to this.

I have always believed agriculture is the most probable root cause if there is anything wrong with the Chinese economy. And the agriculture problem can be most probably traced back to land. Therefore, we insist the red line of 120 million hectares of arable land shall never be broken. It is not only critical to the subsistence of more than 1 billion of China's population but also affects China's sustainable growth. Of course, the mindset of some local officials is part of the reason for this problem but fundamentally it is an institutional problem.

There are two most important institutional problems. First, the legitimate land of farmers is not effectively protected and second, our current fiscal and tax policies, to a large extent, still allow the existence of "land finance." That is to say, the more land you use, the more fiscal revenue you will get. As a result, land is acquired from farmers at low cost on one hand and sold to developers at high price on the other. Meanwhile, wide roads and large squares demonstrate so-called performance which is linked to the evaluation system of government officials. Therefore, we must solve those institutional problems.

Q: China's manufacturing industry undertakes the major task of creating employment. But recently labor costs have been increasing, which might impact the competitiveness of enterprises and their products. What is the view of the Chinese Government on the relationship between rising labor costs and competitiveness?

A: First, the costs of a certain part of Chinese laborers are relatively low and require rational increase. In the first half of this year, the minimum wage of 23 provinces grew by nearly 25 percent. But we must understand two issues. First, the major problem China faces today is employment pressure. We have 15 million migrant workers who need to find jobs in cities and 24 million urban residents who have remained unemployed for many years. What they need first and foremost is work for which they are paid wages. The increase of wages should be kept within a reasonable range so our industries are able to maintain competitiveness and create job opportunities.

Second, we must understand any increase in wages should go side by side with improved productivity. Increasing added value of products and improvement in productivity are exactly the basis of workers' wages increases. Only in this way can we establish harmonious labor relations in our society.

Q: What are the priority industries in China's 12th five-year plan? What are the sectors the Chinese Government will make special efforts to promote?

A: We are formulating the 12th five-year plan. During this period, we will make the structure of primary, secondary and tertiary industries more reasonable. In the process of speeding up industrialization and urbanization, we will focus on strengthening agricultural development and work hard to realize agricultural modernization. In terms of secondary industry, we will attach special importance to sectors related to population, resources and environment, and energy conservation and environmental protection. We will develop energy conservation and environmental protection, new-generation information technology, biology, high-end manufacturing equipment, new energy, new materials and new energy vehicles strategic emerging industries. At the same time, we will accelerate the development of the modern service industry, in particular the service industry related to production activities.

Q: Recently it was pointed out China's business environment seems to be deteriorating. What is the reason for such a view? Is this because people have received the wrong information or have misunderstood the Chinese Government's series of recent documents on government procurement and independent innovation?

A: The growth of investment of foreign enterprises in China has proved they haven't lost confidence in China. But recently there are many voices on independent innovation, IPR and government procurement. It is not entirely misunderstood by foreign companies but to some extent caused by ambiguity of our policy. There are two key points about this question. First, all foreign invested companies legally registered in China enjoy national treatment. Second, in terms of independent innovation, government procurement and IPR protection, we will treat all companies as equals. We will improve relevant laws and regulations and at the same time take an active part in the international government procurement agreement.

Q: The International Energy Agency issued a report not long ago saying China has exceeded the US in becoming the biggest energy consuming country in the world. In your speech, you have also especially mentioned China should make further efforts to enhance energy and resource efficiency. What measures will the Chinese Government take in the long run in order to balance energy supply and consumption?

A: China's energy demand is growing rapidly, which is determined by China's development stage. We must pay attention to it. I want to stress two issues. First, we only took several decades to reach an industrialization level which developed countries took 200 to 300 years to achieve. Second, our per-capita energy consumption is only one fifth that of the US and one third that of OECD countries. While we hold this meeting in this bright hall, there are still many mountainous regions which have no access to electricity and farmers in mountainous areas have to burn wood for cooking and heating all year round. Still, we must curb the development of high energy consuming industries.

China must follow the road of energy conservation. In the process of development, we must attach great importance to energy conservation and environmental protection. This is our firm basic policy. To cope with expanding energy demands, the key is to readjust economic structure and develop products beneficial to energy conservation and environmental protection and also with high added value. Only in this way will our enterprises and economy takes steps on the road of sustainable development.