In a major speech reported by the New York Times’ David Barboza and Chris Buckley, Chinese Prime Minister Li Keqiang says the Party will now more actively embrace market forces and encourage private, foreign investment into Chinese industry.
“The market is the creator of social wealth and the wellspring of self-sustaining economic development,” Li says.
The speech is being hailed as unprecedented in its embrace of capitalism. Writing on his blog, Nobel economist Gary Becker called the above line a “remarkable admission.”
The exact wording for the key policy proposal in Li’s speech, according to a directive Barboza and Buckley cite, is, “promote the effective entry of private capital into finance, energy, railways, telecommunications and other spheres.”
The Party also wants to begin taking steps to allow market forces to determine bank interest rates, it says.
Analysts say the speech is in response to concern that sluggishness in the Chinese economy is lasting longer than leaders desire. China’s manufacturing index contracted for the first time in seven months this past week.
Becker points out that the Party will face extreme opposition from state-owned enterprises, which have been the principal beneficiaries of China’s protectionism. He writes:
China’s new leaders have now made clear that the country needs to rely much more on the creativity and resourcefulness of the private sector if it is to move beyond middle income status, and become a major economic power as measured not only by aggregate GDP, but also by per capita GDP. It remains to be seen whether even the new leaders can overcome the strong opposition of SOEs and other special interest groups to the implementation of a major shift toward the private sector.
Barboza and Buckley say foreign investors will now also have opportunities to invest in logistics and health care in addition to the above-mentioned sectors, but note the directive does not provide exact details.