China's new premier pledges reform, sees risks

China's newly elected Premier Li Keqiang waves as he leaves a news conference after the closing session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, March 17, 2013.

Credit: Reuters/Jason

(Reuters) - Chinese Premier Li Keqiang said on Sunday ensuring economic growth was the top priority for his government, pledging to fight graft, tackle vested interests and calling for an end to a cyber-hacking row with the United States.

Li's first news conference as premier, at the close of the annual meeting of China's rubber-stamp parliament that confirmed his appointment, covered topics that have been the principal focus of recent government rhetoric, with a strong emphasis on the necessity of reform to deliver long-term economic stability.

"The highest priority will be to maintain sustainable economic growth," Li said at the start of the conference that lasted almost two hours and in which he repeatedly stressed the need for economic, social and government reform.

"The key is to have economic transformation. We need to combine the dividends of reform, the potential of domestic demand and the vitality of creativity so that these together will form new drivers of economic growth," he added.

"We said that in pursing reform we now have to navigate uncharted waters. We may also have to confront some protracted problems. This is because we will have to shake up vested interests," said Li, looking relaxed and repeatedly gesturing with his hands.

"Sometimes stirring vested interests may be more difficult that stirring the soul, but however deep the water may be, we will wade into the water. This is because we have no alternative. Reform concerns the destiny of our country and the future of our nation."

Ting Lu, chief China economist at Bank of America/Merrill Lynch in Hong Kong, said in a note to clients that the pro-reform tone of the speech would go down well with investors.

"He understood very well that key barriers for reforms are vested interests rather than ideology," Lu said.

But beyond a specific pledge to cut administrative red tape on some 1,700 processes needing government approval by at least a third, Li's answers to the 11 pre-arranged questions he took from journalists offered no new policy initiatives.

However, he said that planned reform of the controversial system of forced labor camps would come by the end of the year.

REFORM PLEDGES

The premier pledged to reform capital markets, the currency and fight China's pervasive corruption crisis, saying that government officials, having chosen public life, should give up thoughts of riches.

Li said China's broad reform effort would also lead to improvements in environmental controls, cutting pollution in the atmosphere and raising food and water safety standards.

A growing environmental awareness and willingness of urban people to voice concern about industrial pollution have led the ruling Communist Party to worry about the risk of yet more protests that could undermine social order.

Similar worries exist in the leadership about growing discontent over inequality in China, which has one of the world's widest gaps between rich and poor and which has now reached levels which the government fears could spark unrest.

Li reiterated commitments to reform income distribution, improve access to social security and health care and allow welfare benefits to be paid nationwide, regardless of the official residence of the claimant.

China's rigid residence registration, or hukou, system broadly classifies citizens as urbanites or farmers and precludes people from access to basic welfare services outside their official residence area.

Economists say it is a crucial obstacle to rebalancing China's economy away from the investment-heavy, export-oriented model that has lifted hundreds of millions of people from poverty, turned China into the world's biggest trading economy and has been a policy priority for much of the last decade.

Despite its ranking as the second-largest economy globally after three decades of stellar growth, China remains an aspiring middle-income country riven with inequality and dependent on state-backed investment.

About 13 percent of China's population still live on less than $1.25 per day, the United NationsDevelopment Programme says. Average urban disposable income is just 21,810 yuan ($3,500) a year.

On the other hand, according to the latest reckoning by Forbes, China has 122 dollar billionaires. A rival list in the Hurun Report says China has 317 billionaires - a fifth of the total number in the world.

CYBER-SNIPING

Li shrugged off an assertion from one questioner that China was responsible for hacking into U.S. computer systems, restated Beijing's complaint that it too had been under cyber-attack.

"I think we should not make groundless accusations against each other, and spend more time doing practical things that will contribute to cyber-security," Li said.

President Barack Obama also raised U.S. concerns about computer hacking in a phone call with Chinese President Xi Jinping last week on the day Xi took office.

U.S. Treasury Secretary Jack Lew will likely press China to investigate and stop cyber-attacks on U.S. companies and other entities when he visit China this week for discussions on a range of economic issues.

Li, 57, officially took over as premier on March 15 from Wen Jiabao whose 10 years in charge is increasingly regarded by analysts as a lost decade in which economic reform slowed and state-backed businesses tightened their grip on the country's new-found wealth.

Li, as head of the State Council, or cabinet, is charged with executing government policy and overseeing an economy in which growth slowed to a 13-year low in 2012, albeit at a 7.8 percent rate that is the envy of other major economies.

More than any other Chinese party leader until now, Li was immersed in the intellectual and political ferment of the decade of reform under Deng Xiaoping, which ended in the 1989 Tiananmen Square protests that were crushed by troops.

As a student at the elite Peking University, Li befriended ardent pro-democracy advocates, some of whom later became outright challengers to party control. His friends included activists who went into exile after the June 1989 crackdown.

Li drew on his own experiences of rural poverty in the aftermath of Mao Zedong's Cultural Revolution, which forced intellectuals, industrialists and urbanites to leave cities to work on farms, to explain his drive to deliver a better economic deal to China's 1.3 billion people, most of whom are poor.

"I was a sent-down youth in Anhui province's Fengyang County and I will not forget the hard times I spent with the local farmers," Li said.

"Reform and opening up have changed the destiny of our country and lifted hundreds of million of farmers out from poverty. It has also changed the life course of many people, including me. Now the heavy responsibility of reform has fallen on the shoulders of our generation."

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