Perspective

Nicholas Lardy, a leading authority in the United States on China's economy, felt a slight difference in the tone of Premier Li Keqiang's Government Work Report at the beginning of the National People's Congress.

He described the language used as "more decisive", "more concrete and specific" compared with leaders from a few years ago, but the message has been consistent with the ones from the Third Plenum of the 18th Central Committee of the Communist Party of China in November as well as speeches made by President Xi Jinping and Premier Li in the past year.

"In general it was a pretty positive speech, a lot of specifics, and encouraging in terms of moving ahead on the agenda," said Lardy, a senior fellow at the Peterson Institute for International Economics in Washington.

With a 7.5 percent GDP growth target mentioned in Li's report, some wonder whether China will still pursue GDP growth at any cost. But Lardy believes Chinese leaders have made it clear that they are emphasizing the quality and sustainability of growth.

"They still mention 7.5, but I think the body language is - of course I could be wrong - that 7.5 isn't do or die," he said.

In Lardy's view, the Chinese leadership has recognized that the growth model of the last 10 years cannot continue for another nine years. "The chance of big discontinuity in economic performance would rise over time. I think they have strong incentives to change the growth model," he said.

Lardy has long argued that it's necessary for the Chinese economy to slow down in order to carry out necessary reforms and switch the economy from a reliance on exports and investment to a reliance on consumption.

"I think China is doing this because they think it's in their interest and will help them sustain economic growth over the long term at a favorable rate," said Lardy, author of many books on Chinese economy, including Sustaining China's Economic Growth after the Global Financial Crisis, published in 2012.

China faces a different environment from the previous decade, Lardy said. On one hand, the momentum from State-owned enterprises' restructuring and China's accession to the World Trade Organization a decade ago is no longer generating new growth. On the other hand, the global economy is not as strong as it was six or 10 years ago.

Lardy said the new leadership has made him more optimistic about fundamental economic reforms. But he warns of the urgency to start some reforms, such as interest rate liberalization.

Lardy argues that since the interest rates are higher outside the controlled bank sector, liberalizing the rate means banks have to pay higher interest rates and charge higher rates on their loans. It will help cut down the rate on investment and increase household income. At the same time, the private sector, now roughly twice as efficient in return on assets, will have more access to capital and generate growth at a low rate of investment.

Lardy praised the new leadership for having a good appraisal and understanding of the situation and the challenges they face.

He is especially impressed that President Xi is taking ownership of the overall reform process by leading the comprehensive reform leading group. "He is not delegating someone else. He is really taking ownership of it. At least that's a good initial sign," he said.

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