U.S. News

Chinese Leader Offers a Glimpse of the Future

Katrin Bennhold|The New York Times

China gave the world a glimpse of the next generation of Chinese leaders on Thursday when Li Keqiang, widely expected to be the next prime minister, vowed that his country would act swiftly to shift from an over-reliance on exports toward greater domestic consumption.

Li Keqiang
Fabrice Coffrini | AFP | Getty Images

But, in a half-hour speech at the World Economic Forum here, he carefully avoided any mention of the issue that was foremost on the mind of many in the audience: the undervalued Chinese currency. He offered no clues as to whether or when Beijing might allow the renminbi to appreciate against the dollar.

Mr. Li opened with a clear signal that China, which has weathered the global financial crisis better than most, did not consider it to be over. “The storm has not subsided,” he said.

Against the backdrop of growing calls for protectionism in the United States, Mr. Li appeared eager to emphasize a pledge to remake the Chinese economy in a way that would help address, at least over the longer run, China’s gaping trade surplus with the United States and its lesser trade gap with Europe.

“As we stand at a historic juncture,” Mr. Li said, “we must change the old way of inefficient growth and transform the current development model that is excessively reliant on investment and exports.”

“We will focus on boosting domestic demand,” he added, listing a number of initiatives from providing a stronger health care safety net, which would lessen the need for Chinese families to set aside large amounts of savings, to subsidizing farmers who buy household appliances. “The growth in domestic consumption in China will not only drive growth in China but also provide greater markets for the world.”

At the same time, Mr. Li repeatedly emphasized the importance of international cooperation, from continued coordination on fiscal stimulus to a global accord on climate change, something that economists in the audience welcomed as a sign of a China that would stay open and engaged.

Mr. Li, who is currently the executive deputy prime minister of China, is expected to take over from Prime Minister Wen Jiabao in the leadership change scheduled for 2012; the prime minister is the second-highest government official in China after the president. His speech to the world’s political and business elite in Davos was his first high-profile international appearance. A year ago, it was Mr. Wen who took the podium here.

There were traditional references to Confucius in his address, but also shades of novelty. He took the stage in confident strides, smiling and waving to the packed auditorium. He said he would to press ahead with pro-market changes, break monopolies and introduce more competition. China would “allow the market to play a primary role in allocation of resources,” he said.

In the middle of the speech he even made a veiled and seemingly conciliatory reference to the issue at the heart of the simmering spat with Google.

“Efforts need to be made to improve intellectual property rights,” Mr. Li said.

China’s rapid emergence and its diplomatic dance with the United States on everything from trade conflicts to climate change to geopolitics is shaping up as one of central issues on the global stage in the coming months and years.

The risk of a backlash in the United States over the Chinese currency was on stark display in Davos. Representative Barney Frank, chairman of the Financial Services Committee of the House of Representatives, called for actions to “level the playing field” at a time when America’s jobless rate has reached 10 percent.

“China has been very uncooperative and the currency is a major part of it,” Mr. Frank said in an informal interview here. “They want the world to be open to them but refuse to be open to the world.”

The threat that Western countries might retaliate by blocking China’s exports is one of the leadership’s biggest concerns. “Trade protectionism practices will only exacerbate the economic crisis,” Mr. Li said, urging a swift conclusion of the Doha trade round.

“The international financial crisis is not over,” he warned, “and the foundations of the economic recovery are still weak.”

He noted that more than half of Chinese exports were manufactured by foreign companies in China and that China had now become the second-biggest importer in the world.

Members of the U.S. administration here acknowledged the positive role China had played in bolstering growth and welcomed signs that the leadership was getting serious about restructuring the economy.

“I think China is moving in that direction,” said Robert Hormats, U.S. Under Secretary of State for Economic, Energy and Agricultural Affairs.

Mr. Li also hinted at why China had recently moved to curb its feverish growth with tighter monetary policy. The country needs to “strike a balance,” he said, between “steady and fast growth” and “properly managing inflationary risks.”