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China’s No. 2 hints at a weak economy

Li needs China to innovate in a way it never has.Li needs China to innovate in a way it never has.
Li needs China to innovate in a way it never has.Getty Images

Because China’s economic data is managed, it’s important to follow the messages from its leaders about the economy and try to decipher what they mean.

The latest, from Premier Li Keqiang, the Communist Party’s No. 2, points to near-desperation from the top ranks for reforms and technology to save the economy from a crumbling, shrinking industrial sector. His remarks may also confirm an economy operating well below the official goal of 7% GDP growth this year.

“Chinese Premier Li Keqiang has stressed deepening reforms and fostering new growth impetus to stabilize the economy,” was the opening line of Xinhua’s story, the top state-run news agency.

In a speech to the heads of half a dozen provinces this week, Li described the importance of a shift from “traditional growth methods”—i.e., heavy industry, manufacturing, and infrastructure that is in recession— to “new engines,” which have one basic thing in common: they’re about innovating in ways China never has.

Behind the “new engines” slogan, Li outlined three strategies. The first is to support a rise of “mass startups” in the country. Record venture capital investments in China over the past year and half are evidence of the rise, which has been supported by central government’s investments in Beijing’s Zhongguancun area, or what it calls China’s Silicon Valley.

The second growth strategy is a play off of the “Internet of Things” called “Internet Plus.” At tech conferences around China, almost every sizable startup references the term, which loosely means using new technologies in traditional industries in manufacturing, energy and agriculture. The ruling State Council expects big investments in cloud computing and artificial intelligence, an area in which Dell said it wants to join as part of a pledge to invest $125 billion in China.

Li’s third strategy is a retool of China manufacturing economy to mimic Germany’s upgrades in manufacturing that stressed new technologies and green sustainability.

A realistic read on Premier Li’s comments is that China’s leaders know there’s almost no chance of meeting their 7% GDP growth goal for the year, and they are putting a shiny spin on proposed reforms that haven’t yet been truly enacted. Moreover, politically powerful state-owned enterprises in the industrial sector have been pushing back against proposed reforms, so much so that Li traveled to the country’s northeast earlier this year to press his case. He scolded officials there, telling them they had “attempted nothing and therefore accomplished nothing.”

Li’s latest comments might be reminders to those rival factions that China’s old model is really changing—but probably not fast enough to save the economy from more disappointments in the near term.