How China's New Premier Climbed the Rungs of Power

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Climbing a muddy mountain slope, Li Keqiang sighs to himself, "it's too sparse here. There's too little land in the mountains. It's going to be hard for people here to increase production."

This scene unfolded in Enshi, a mountainous, poor region inhabited by the Tujia people in Hebei Province, on December 29, 2012, during Li's official visit as a vice premier and one of the seven Politburo Standing Committee members.

Three months later, during the 12th National People's Congress (NPC), the 57- year-old was appointed premier of the State Council.

Li was born in Dingyuan County, Anhui Province, where his childhood played out amid the most tumultuous years of the Cultural Revolution. He was an "educated youth," one of the young people sent to the countryside during the period. Once the university entrance examination system had been reinstated in 1977, he tested out of a people's commune of Fengyang County in Anhui into the law department of the prestigious Peking University.

Li's course has taken him from the grassroots to the center, from the head of the agricultural province of Henan, to the industrial province of Liaoning, and eventually to the very top of Chinese leadership. His career trajectory and his policies in these provinces provide some clues as to where China is heading in the coming years.

Seeds of Prosperity

When the Communist Party's Central Organization Department decided to send Li to Henan and then to Liaoning to be party chief, on both occasions recommendation letters offered the praise: "clear thinking, and he gets a good grasp the key issues."

On July 14, 1998, Li was appointed vice secretary of the Henan Provincial Party Committee, and on February 7 of the following year he was appointed provincial governor. At 43 years old, Li became the youngest provincial governor at the time. This was his first stop from the central government in Beijing to head a local government.

At the time, China's economy was at a low in the wake of the Asian Financial Crisis. Economic growth in Henan had slowed from nearly 14 percent to 8.8 percent. In 1998, Henan's per capita GDP was a mere 4,976 yuan, placing it near the bottom of provinces. The most urgent task facing him was identifying an economic growth engine.

Henan has its advantages. In 1997, the province's grain output for the first time surpassed that of Shandong, placing it first in the nation. That said, the increased production did not become an important driver of economic growth. In Li's first few months in Henan, he made inquiries in many villages and enterprises and found that the crux of the problem lay in the fact that "Henan's products are of low quality and nearly all are identical."

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Li found that profits on unprocessed grain were low and that the only way to gain an edge would be to produce more processed, value-added products.

High-quality, high-gluten and low-gluten wheat are necessary for the production of processed food products such as bread, cakes and crackers. But at the time most wheat in Henan was of medium-gluten content, suited to making noodles and steamed buns. Li organized research for promoting the planting of high-grade wheat. Soon, Henan saw the emergence of about a dozen processing and value-added wheat products.

Now the province is No. 1 in China in grain and meat processing and has the largest number of food brands of any province.

This was only one part of Li's strategy for the central province. In a speech at the Henan Provincial Economic Work Conference in December 2002, Li for the first time presented his concept of "accelerating industrialization and urbanization and promoting agricultural modernization."

At the time there was no consensus in the province on Li's thoughts. There were even heated disputes. Many experts, scholars and officials argued that since Henan was a major agricultural province, without agricultural modernization, the province would be unable to rise.

But Li had made his decision. He personally organized symposiums at which he explained that if farmers were to become rich, then there must be fewer farmers. He also promoted agricultural specialization, industrialization and intensification, and he explained that in order to achieve those goals, the only road was further urbanization.

In July 2003, the provincial party committee passed a guideline in which officials claimed that the fundamental path for Henan to completely building a well-off society would be accelerating industrialization and urbanization and promoting agricultural modernization.

Li's policy showed results. The per capita net income for rural citizens of the province in 2004 was 2,553.15 yuan, a 14.2 percent growth over the previous year. It was the first time in eight years that the figure had grown by double digits. It was also the first time in Henan that rural citizens' net incomes grew faster than urban citizens'.

Overhauling SOEs

In December 2004, Li was transferred to Liaoning to be party chief. At the time, the central government's strategy of "revitalizing the northeast" had been in place for only four months. The major task facing Li was how to take advantage of opportunities arising from the central government's new policies in Liaoning, a province traditionally dominated by heavy industry.

Beginning in the 1990s, Liaoning, formerly a bastion of the planned economy, was falling further into a quagmire. State-owned enterprises (SOEs) were losing money, and hundreds of thousands of workers were unemployed.

Li's plan for reforming SOEs was to develop the mixed ownership economy by introducing private owners. Within two years, he ushered in joint-stock reforms of large SOEs and finished property rights reforms for small and medium-sized SOEs.

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Li proposed in a policy paper that "other than large coal companies that must be directly held by the state, equity ratio limits must be removed for local SOEs in all other areas and industries; let the markets make decisions based on the requirements of growth."

At the end of 2007, the Liaoning Provincial Revitalization Office published research indicating that 29 of the province's 40 major industrial SOEs had completed joint-stock reforms.

Local Strategies

Over the course of Li's career, he showed he could quickly identify a development strategy that was in tune in with the national development plan.

In 1999, the central government began advocating for major development of the country's western regions. Li's strategy for Henan's development was called "drawing from the East and advancing toward the West."

This meant attracting industry, technology, capital, talent, projects, and management experience and mechanisms from the east, while participating in the campaign of development of the west, strengthening economic and technological cooperation with western provinces, and increasing the share of Henan-made products in western markets.

Henan's comprehensive economic strength increased significantly. Between 1997 and 2002, provincial GDP climbed from 407.9 billion yuan to 616.3 billion, an annual growth rate of 8.9 percent, 1.3 percent higher than the national average over the same period.

In March 2003, Li unveiled his concept of "the rise of the Central Plain" in an interview during the NPC.

Li pointed out that that the Chinese economy at the time was shifting from the east toward the west, and globalized industries were shifting from the eastern seaboard to the interior. Thus Henan, in the middle of the country, should take full advantage of this opportunity.

Li said that there were three measurements to look for in the rise of the Central Plain. First, Henan's level of economic development should reach the national average over nearly 20 years. Second, the entire economy should be fundamentally industrialized, meaning that by 2020, non-agricultural labor should comprise 60 percent or more of the labor force, and the urban population should comprise 50 percent or more of the total population. Third, Henan should lead in economic indicators compared to central and western provinces.

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His idea was recognized by the central government. In March 2004, then premier Wen Jiabao proposed the important strategic concept of "promoting the rise of the central regions."

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Spearheading Reforms

In March 2008, Li became the youngest vice-premier since reform and opening started in the 1970s. Over five years, he tackled difficult areas like fuel tax reforms, medical system reform, affordable housing projects and changing the business tax into a value-added tax. A government employee close to Li said that it was not that Li did not understand the risks posed by the difficulty of these tasks, but rather he thought that he should do what was necessary.

One example was fuel tax reforms. Since 1998, calculations and research have been ongoing in the realm of fuel tax reforms, and officials have been seeking the opportunity to make changes. One of the stipulations for reform at the time was that the international petroleum price drop below US$ 25 per barrel. However, with continuous price hikes, the reforms never got introduced.

In the second half of 2008, as the global economic crisis was unfolding, the international petroleum price fell from its high of US$ 147 in July to below US$ 45 over four months.

On November 11, 2008, the State Council established an inter-ministerial team for reforming taxes on refined oil, consisting of 14 leaders from ministries and led by Li. On December 18, the cabinet published a notice announcing reforms to refined petroleum taxes to begin on January 1, 2009. Fuel tax reforms, which had been delayed for ten years, were finally being realized.

The former vice director of the State Administration of Taxation, Xu Shanda, said that this was a very effective reform and was the beginning of establishing a pricing mechanism based on the market. It reduced the costs of tax collection and payment, and reduced a senseless economic burden on society.

Medical system reforms were another sticky issue. In 2008, Li was appointed chief of the State Council's leadership group for deepening reforms to the medical system.

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On February 8, 2012, Ministry of Health officials issued statistics of the results of the five focus reforms of the New Medical System Reform Scheme. The report stated that the basic level of medical care guaranteed to rural and urban citizens had risen noticeably.

There were over 1.3 billion participants in the basic medical care system, meaning that its nationwide coverage was as high as 95 percent. The government subsidy standards for the New Rural Cooperative Medical Scheme and insurance for urban citizens rose from 120 yuan in 2010 to 200 yuan in 2011. The proportion of reimbursable expenses allowed by policy increased from 60 to around 70 percent.

The international medical magazine The Lancet said that after the reforms, China had the world's largest medical insurance network.

Li is known for being open and honest about problems. Since the beginning of 2013, the east has been covered in haze. On January 15, at a research symposium, he said that if the haze problem was to be tackled, the government "should report transparent, accurate and timely PM2.5 data to the public."

He once asked concerned officials: "What's the worst that could happen if we release [the data]? In this Internet age of shared information, even if you don't tell the people, they will find out. So why should we deceive our own people?"

His style was more apparent in efforts to prevent the spread of AIDS in Henan.

When he took up his post in the province, AIDS was already becoming an epidemic. As governor, Li said at a provincial conference that "we must make sure that these AIDS patients have houses to live in, clothes to wear, food to eat and basic medical insurance, and we must ensure that no school-aged children in AIDS households be deprived of education."

In the second half of 2003, Li convened a session of the party's provincial standing committee at which it was decided that all AIDS victims who had contracted the disease as a result of selling blood would receive free anti-viral treatment, testing and prevention of mother-to-child transmission. It was also decided that AIDS orphans would attend school for free and aid would be given to patients from poor families.

In September 2004, up-to-date data on those infected with HIV and sufferers of AIDS in the province was published. This created waves and for a time affected local investment. However, this openness set an important precedent for AIDS relief work in the province.

Broad Learning

Li has been lucky in his acquaintances. He has had several mentors guide his career.

During the tumultuous years of the Cultural Revolution in which schooling in the country ceased, Li sought advice from academic Li Cheng, at the time employed by the Anhui Provincial Research Institute of Culture and History. Li Keqiang later recalled in his writings that "Mr. Li talked to me about Chinese civilization, about methods of study, and anecdotes from the past and present. In his daily lectures that usually went on about an hour, our discussions often ended in debates. This went on for about five years, almost the entirety of my youth."

Upon entering Peking University, Li was influenced by the older generation of scholars who had personally experienced the turbulence of the nation's modern history and were well-versed in Chinese and Western studies.

One professor, Gong Xiangrui, recalled Li's class in his memoirs. "They were somewhat old for university students; more than half already had their own families … They also had life experience, and so naturally they had varying levels of disgust with the Cultural Revolution."

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In the following years, with Gong's help, Li translated and published several books, including The Due Process of Law and The Discipline of Law by Alfred Denning, a 20th century British lawyer.

Li later shifted the focus of his studies to economics. In 1994, he was awarded a doctorate of economics from Peking University. His PhD advisor was renowned economist Li Yining, known as "Stocks Li" for his promotion of joint-stock reforms to SOEs.

In 1991, Li published his thesis "On the Ternary Structure of the Chinese Economy" in the magazine Social Sciences in China, and won the Sun Yefang Economic Sciences Dissertation Award in 1996.

In his estimation, the binary structure of the traditional Chinese economy, featuring rural vs. urban economies, determined that a transition from a traditional agricultural society directly into a modern industrial society would be difficult. He further proffered that China was going to pass through an era of ternary economic structure: part agricultural, part rural-industrial and part urban-industrial.

Li is a long-time advocate of the market. A week after the party's 18th National Congress in November ended, he pointed out at a meeting that the crux of reforms would be handling the relationship between the government and markets. He advocated for more allocation of resources to be decided by the markets.

He enthusiastically supported a report by the State Council's Development Research Center and the World Bank that was titled China 2030: Building a Modern, Harmonious and Creative High-Income Society. He has extensively researched the industrial revolution and encouraged officials to study Jeremy Rifkin's The Third Industrial Revolution.

Now heading the cabinet, Li faces many tough issues, namely that the pace of reforms to public hospitals is slow and welfare housing lacks a national system. There is still no diversified competition in the medical industry. Urbanization, the center of Li's governance strategy, is still facing old problems regarding land, household registration and social welfare.

More importantly, in today's China, economic development is increasingly determined by the comprehensive progress of reforms. Many ask how far can an "economic cabinet" go when facing entrenched interests and power structures without political reform.

Some argue that the Chinese market economy, benefitting from 30 years of reform and opening, is finally beginning to take shape and now is the time for action.

It would seem Li agrees. In a recent interview, he told People's Daily: "Those who refuse to reform may not make mistakes, but they will be blamed for not assuming their historical responsibility."