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18 Apr, 2015

Lessons of history must be learnt: Transcript of Chinese PM Li Keqiang’s Interview with FT Editor Lionel Barber

BEIJING, April 15 (Xinhuanet) — On the afternoon of 31 March 2015, Premier Li Keqiang of the State Council gave an exclusive interview to Lionel Barber, Editor of the Financial Times, at the Great Hall of the People. The transcript is as follows:

Li Keqiang: Good to see you again, Mr. Barber. I recall that last year we met at a time when there were new developments in global economic recovery. And now we are still witnessing new dynamics in the global economy. Our meeting today also shows that China is ready for even closer interaction with the global economy, in which it has already become deeply integrated. And China is ready to continue to make its contribution to facilitating the global economic recovery. The correspondent you sent to China speaks Chinese so well that if I do not see him in person, I hardly know that he is a foreigner.

Chinese Premier Li Keqiang (R) meets with editor-in-chief of Britain's Financial Times Lionel Barber in Beijing, capital of China, March 31, 2015. (Xinhua/Li Tao)

Chinese Premier Li Keqiang (R) meets with editor-in-chief of Britain’s Financial Times Lionel Barber in Beijing, capital of China, March 31, 2015. (Xinhua/Li Tao)

Barber: Premier Li, it’s very good to be back in Beijing, resuming our strategic dialogue. I recall in our last conversation, we talked about the risks in the world economy. And we know that the central banks in America, Europe, Britain and Japan are engaged in unconventional monetary policy to maintain economic growth. But in our last conversation, you asked me whether I believe there were risks when this period of unconventional policy ends. And I said I thought they were manageable. Do you share that view as the US prepares to end its quantitative easing?

Li Keqiang: I have to say I am half convinced and half doubtful. When the QE is in place, there may be all sorts of players managing to stay afloat in this big ocean. Yet it is difficult to predict now what may come out of it when the QE is withdrawn. And although there is little debate about whether there will be an interest hike in the United States, people are quite uncertain about when this interest hike will take place. Honestly speaking, it is quite easy for one to introduce QE policy, as it is little more than printing money. But what about the structural problems that have led to the global financial crisis and weak economic recovery? We believe one needs to undertake structural reforms. Yet not that many countries have taken significant steps in this direction. This is like treating a patient. We need to give him IV drip and antibiotics. Otherwise, it may cost us the time to cure his disease. But eventually, one has to discontinue the use of antibiotics to allow the patient himself to recover on his own physical strength. So I’m not an outright opposer to QE, but I believe what is more important is the structural reforms.

Barber: Premier Li, I just come from Tokyo where I spent nine days in Japan looking closely at their economic experiment. I met with Prime Minister Abe for an hour for an interview. I wonder, are you concerned that the depreciation of the yen and the euro against the RMB means China is less competitive and you may have to devalue in response?

Li Keqiang: China has been advancing the reform of the RMB exchange rate formation mechanism to widen the RMB floating band and improve the market-based, managed exchange rate regime. For some time, there has been slight devaluation of the Chinese currency. But this is not because of the steps taken by the Chinese side, but because of a stronger US dollar. I believe the current value of the RMB is basically stable. We don’t want to see further devaluation of the Chinese currency, because we can’t rely on devaluing our own currency to boost export. Instead, what we need is to boost our domestic demand. Otherwise, it will be difficult for us to adjust our economic structure. We don’t think companies in China should mainly rely on a devalued Chinese currency to boost export. Instead, they should focus on enhancing their competitiveness by raising the quality of products and making technological innovations. At the same time, we hope that all major economies will enhance coordination on macroeconomic policies. We don’t want to see a scenario in which major economies trip over each other to devalue their currencies. That will lead to a currency war. And if China feels compelled to devalue the RMB in this process, we don’t think this will be something good for the international financial system. This may ultimately lead to trade protectionism and impede the globalization process. This is something we don’t want to see.

Barber: Premier Li, may I share with you one clear impression from my visit to Japan regarding Japan-China relations. The message from the highest level with whom I conducted many interviews was that China-Japan relations have improved. There is reference to the meeting between President Xi and Prime Minister Abe. And I wonder whether you think there is improvement, do you agree with that? And whether this is durable or just a pause. And there may be problems ahead, for example around the 70th anniversary and World War II statement that the Japanese government is planning to make.

Li Keqiang: The current China-Japan relationship is still in a quite difficult spot. There is wish from both sides for improved relations. But such improvement needs a foundation. The crux of the issue is how to view the history of the Second World War, and whether one can draw lessons from that part of history to ensure that the war will never repeat itself. I suppose when you were in Japan, you may have heard such views that the war took place 70 years ago, and the war was something done by the past generation and has little to do with the current generation of the Japanese people. Why does the Chinese side refuse to let it go? I don’t think this is something about the Chinese refusing to let that part of history go. What we believe is history should not be forgotten. Mankind has successfully kept a large world war at bay in the past 70 years. We believe it is because lessons have been drawn from that part of history in which mankind acted stupidly. It is common knowledge in political science that leaders of a country, while inheriting the achievements made by their predecessors, should also shoulder the responsibilities for crimes committed by past generations. This is how one establishes his true sense of national identity and responsibility.

This year marks the 70th anniversary of the victory of the Chinese people’s war of resistance against Japanese aggression and the world anti-Fascist war. Many countries in the world are considering holding activities to mark this important moment. As I said at my press conference a few weeks ago, this is both a test and an opportunity to China-Japan relations. History, if not forgotten, can serve as a guide for the future. That will give us the opportunity for improving China-Japan relations. Just now I mentioned the “stupid war”. What I mean is the stupid war of aggression waged by those militarists. We have the highest respect for all anti-Fascist fighters.

Barber: Could I turn to the Asian Infrastructure Investment Bank? Are you very pleased that the British have now started a stampede to join the bank?

Li Keqiang: The original consideration for putting forward the AIIB initiative is there is a large funding shortfall for infrastructure development in Asia, especially connectivity building. This shortfall needs to be met with the support of several multilateral financing institutions. The AIIB is going to be an open and transparent institution. It welcomes the participation of countries from outside the Asian region. And we welcome British application for joining the bank. China and the UK should continue to work together to develop a partnership for growth. I wish to emphasize that the AIIB and ADB can work in parallel in promoting Asian development. And the initiative of AIIB is not to reinvent the wheel. Rather it is intended to be a supplement to the current international financial system. China wants to work with others to uphold the existing international financial system. And we are ready to continue to play our role in building the current international financial system. And if there is a need for reforming the current system, we are also ready to work with other countries to help make the system more just, reasonable and balanced.

Barber: So Premier, you don’t share the view that I sometimes hear in China that we did not build the liberal post-war financial system, so therefore we have to create a new order. You are saying to me this is complementary, not a challenge, to the World Bank, the Asian Development Bank.

Li Keqiang: Let me first emphasize China was deeply involved in establishing the post-war international order from the very outset. China was a permanent member of the UN Security Council and a founding member of this world body. Although afterwards for some years China closed its door to the outside world, since the day it reopened the door, China has been playing its due role in the international economic and financial systems. At the same time, the current international economic and financial systems have opened up broad dimensions for China’s development. For example, we gained advanced experience from working with the World Bank and other institutions, and our WTO membership has also helped Chinese companies gain deeper knowledge about how they can compete with others under international rules. So China has been a beneficiary of the current international system in terms of both peace and development. Still China is a developing country, and we still have a long way to go before we can achieve modernization. We still need to draw upon the advanced technologies and managerial expertise of other countries. Past progress shows that pursuit of mutual benefit makes all winners. And that is in China’s fundamental interest. So there is no such thing as breaking the existing order.

Barber: Sure many will be delighted to hear your description of China as “highly responsible stakeholder”. But do you have the same enlightened view of TPP, the Trans-Pacific Partnership?

Li Keqiang: We have an open attitude towards the TPP. China is actively working with others to advance the RCEP negotiation. We believe the RCEP, economic integration in the Asia-Pacific, the China-ASEAN FTA, the China-ROK FTA and so on can all work in parallel. This applies to the TPP too. But all in all, I believe we need to have both wheels in motion in advancing trade. That is: there can be bilateral and regional FTA arrangements with their respective distinctive features. At the same time, there also needs to be full compliance with the WTO rules to promote economic globalization and trade liberalization.

Barber: Let me turn to the Chinese economy where you are engaged in a historic transformation. If I ask you for your own report card, how many marks out of ten would you give yourself so far? Eight or nine?

Li Keqiang: It seems to be against the general rule for me to pass a score on how I have performed. I believe that it is up to the people to pass a judgment. As far as I am concerned, I will continue to do my best.

Barber: Are you concerned about inflation, particularly in the real estate market?

Li Keqiang: Inflation has been quite low in the past several months in China. The figure for January and February this year was no more than two percent. In January, it was just zero point something percent. Some even think there is deflation in China. I have already addressed such a question before. China is not in deflation, because over one third of China’s CPI composition is food price, and we had a bumper harvest last year. But the tumble of international commodity prices did put our PPI under much pressure. So, in a certain sense, we are on the receiving end of deflation, but this does not mean there is deflation in China.

For the real estate market, we will continue to take a multi-pronged approach to meet the diverse needs in light of the different conditions of different localities. We will continue to build more government-subsidized housing units. We want to have steady and sound growth of the real estate market. The government will continue to encourage the home-buying for self use or improved living conditions, and guard against property bubble. Honestly, there may be certain conflict of interests among these goals, and we need to strike a proper balance among multiple goals and exercise proper regulation. This is not going to be easy, but we will do our best and we believe we can do it.

Barber: Premier Li, the Chinese government has been engaged in a very intense anti-corruption campaign. And you have caught many flies and quite a few tigers recently. Will this campaign ever end?

Li Keqiang: Anti-corruption is a long-term task for any country. It is hard to say when the fight against corruption should start and when it should be brought to an end. It’s true that we are intensifying efforts in fighting corruption. In particular, we are very serious about institution building. The government is streamlining administration and delegating powers. We want to ensure that government power will be exercised with restraint, and the government will fully live up to its due responsibilities to boost market vitality, eliminate the space for rent seeking behaviors and uproot corruption. This will be a long-term struggle. If one is to translate “campaign” into Chinese, it should be “行动” instead of “运动” (译者加: or movement).

Barber: But it is a very powerful campaign, because I spoke to a very prominent Western businessman who went to see one of the Chinese oil companies, and he said he didn’t recognize anybody in the room, because the 30 people who were there last year had all disappeared.

Li Keqiang: Most Chinese companies are still functioning normally. We hope foreign companies won’t cut off their ties with Chinese companies.

Barber: It’s just the foreign companies are very impressed by the Chinese government’s magic act, and they disappear. But seriously, Mr. Premier, there has been some talk of hostile western forces in the media. As a visitor who comes from the West, who counts himself as a friend of China, I just worry about that. Can you just give me some reassurances that this is just talk?

Li Keqiang: Since China started the reform and opening-up, an increasing number of foreign journalists have come to China. And now, over 60 countries have resident journalists in China and those journalists are welcome to work in China and favorable conditions will be provided for their work. I believe that there will only be more foreign correspondents coming to China. We hope that they will report to the world a China as it is. At the same time, foreign journalists need to abide by the laws and regulations in their host countries. Some foreigners may not have been to China and it’s natural that they may not know China that well or even have some misunderstanding about this country. Truthful reports by the media can help dispel their doubts. I believe more and more foreigners will come to China and see that China is an open and inclusive country which hopes for mutual respect and mutual learning between people of different countries. As for hostile activities, there are violent, separatist and terrorist crimes committed in China, and they should be handled in accordance with law. There may be different punishments for drug-related offences in other countries, but the Chinese people have a painful memory about the harm of opium, hence we resolutely combat all drug-related crimes. And I hope we will have your understanding about this.

Barber: Mr. Premier, we are in the Hall of Hong Kong, are you satisfied that the package offered by the Beijing government will be adopted by the Hong Kong legislature? Or do you think we are still going to have problems, student unrest in Hong Kong? Are you worried about that?

Li Keqiang: About Hong Kong, you know that we always follow the principles of “one country, two systems”, “the people of Hong Kong administering Hong Kong” and a high degree of autonomy. The Chinese central government will continue to support the Hong Kong SAR government and the Hong Kong SAR Chief Executive in administering the region in accordance with law. In spite of what happened recently in Hong Kong, we believe that past progress has shown that the principle of “one country, two systems” is the right way to take and that Hong Kong will maintain long-term stability and prosperity. The splendid night scene of Hong Kong in the picture behind us carries three key messages: the “one country, two systems” principle has strong vitality, the Hong Kong SAR government has full capability and the Hong Kong residents have their wisdom. We believe all issues can be properly settled.

Barber: Premier Li, thank you for your generous time for me as a visitor to Beijing. This conversation has merely whetted my appetite for the third conversation, maybe even on record, either in London or even in Beijing, or in Hong Kong.

Li Keqiang: I see you have recorded it. I can take responsibility for every sentence said. We’ve had a very good conversation and I see you do have the capacity to bombard me with a succession of questions. So, maybe one final question.

Barber: This is one newspaper, two journalists. I give this opportunity to Mr. Pilling.

Pilling: Some of the actions being taken in China, Mr. Li, including exchange rates, reserve requirement, and in terms of housing market, suggest that you are worried that the economy is slowing down more quickly than you would like. And there is some data that shows that the economy is growing well below 7%. Are you worried that the economy is slowing down too fast?

Li Keqiang: I cannot give you the data of China’s GDP growth in the first quarter now. In some time, it will be released by China’s statistical bureau in accordance with law and we will not intervene in those data. On the whole, there has been stability in employment. This is a very important thing, because the ultimate goal of steady growth is to ensure employment. It’s true that our economy is still under downward pressure. Hence, since the fourth quarter of last year, we have made fine-tuning adjustments to our fiscal and monetary policies, but these adjustments are not a QE policy. Instead, they are targeted regulatory steps and they have paid off. Our goal is to keep China’s economic operation within the proper range. We want to achieve not just an approximately 7% growth, but also fairly sufficient employment, increase in household income and improvement of the environment. These preemptive measures and fine-tuning adjustments to our fiscal and monetary policies as well as the government’s self-targeted reform of scaling back administrative power to give more play to the role of the market have managed to offset the downward pressure on economic growth. We have the ability to keep economic operation within the proper range. The Chinese economy has become so large, amounting to 10 trillion US dollars. So, it won’t be easy to achieve another 7% growth this year. This requires vision, perseverance and courage. When the end of the year comes and we need to turn in the report card, we shall ask the people and you too, Mr. Barber, are also welcome to pass the score on how we have performed.