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Premier Li Keqiang sets out plan for 6.5% annual growth through the end of the decade

Chinese Premier Li Keqiang outlined the country’s economic goal to maintain growth of at least 6.5% through 2020 at the annual Boao Forum for Asia – China’s answer to the Davos World Economic Forum. As part of this plan, China will cut taxes in the hopes of stimulating growth in the service industry. The tax cuts will amount to 500 billion yuan ($76.8 billion) this year, reports The Wall Street Journal.

“This is a major step to promote structural reform,” said Li. “We have great development potential as well as resilience.”

The 6.5% target is below last year’s growth of 6.9%, which was itself the slowest pace of growth reported in China in a quarter century. Li compared the Chinese economy to a high-speed train, saying the growth seen in the past was unsustainable, and that the government will pay more attention to the quality and efficiency of economic growth, reports Reuters. The primer added that China will not devalue the yuan exchange rate to boost exports as it would not help Chinese firms become more competitive.

China, Chinese Premier Li Keqiang

Chinese Premier Li Keqiang

Li said China will remain open to the world, gradually liberalize its services market to outside investment and avoid a rapid depreciation of the yuan in keeping with its bid to encourage higher-value industries.

China’s struggle with becoming competitive on the global stage

The latest announcement at the Boao Forum is the latest in a string of decisions made by the Chinese government as it tries to make its industries more competitive in the global market. The shift has been slow to take hold, however.

With overcapacity comes layoffs, or not

Overcapacity in some industries like steel is in excess of 30%, and some state firms are struggling to balance politics with the desire to become more competitive.

Chinese oil and gas firms have managed to avoid wide-spread layoffs through the commodity downturn, but this seems to be a function of the state’s wish to maintain employment, rather than an economic decision by the companies.

Despite their comparable size in terms of operating revenue in 2015, ExxonMobil’s (ticker: XOM) net profit was roughly three times that of PetroChina (Ticker: PTR). Looking at employees, PTR has more than 500,000, compared with fewer than 75,000 at Exxon.

“Today’s economic restructuring cannot come at the cost of workers’ well-being,” Chinese President Xi Jinping said. “We must guarantee the incomes and treatment of the front-line employees.”

During the Boao Forum, Premier Li said China has set aside funds for retraining and relocating an estimated 1.8 million workers who are expected to lose their jobs.

Li also underscored China’s bid to spur regional growth and expand its influence by building infrastructure under its “One Belt, One Road” initiative. The project would create a common economic interest across 66 countries where China would be the largest trader in most of the participating countries.

Chinese trade expansion means increasing involvement in other countries’ politics

The problem with such an enormous project lies in security concerns, however, Professor of Chinese Studies and Director of the Lau China Institute at King’s College Kerry Brown, told Oil & Gas 360®.

“[China] is a long way from having the trust of its neighbors,” said Brown. “There’s a lot of increasing trade links, but no one talks about China as a security partner.”

As it expands its influence, China is likely to be increasingly involved in the politics of other parts of the world, particularly in the Middle East.

“China’s strategy is to be pragmatic in the Middle East,” said Brown. With an overwhelming amount of their imported oil coming from the Middle East, China has tried to steer clear of political issues, but it may not be able to stay on the sidelines forever.

“ISIS has said [China is] a fair target, and has been taking Chinese hostages. This seems likely to continue,” said Brown.

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