Li Takes Mantle as China Premier With Growth Model at Stake

By Bloomberg News

Li Keqiang today became China’s first premier with an economics doctorate, expertise he may need as policy makers struggle to shift the world’s second-largest economy toward a model relying on consumption over exports.

The appointment of Li, 57, by the National People’s Congress makes him head of the State Council, or cabinet, succeeding Wen Jiabao. The legislature will fill out Li’s team tomorrow with decisions on senior government posts including vice premiers, ministry heads and the central bank chief. Li’s elevation comes days after data showing China remains reliant on overseas sales and investment at home to propel its expansion, underscoring the challenges faced by an administration that puts urbanization at the forefront of its domestic initiatives. In two days he will have a chance to detail his agenda amid calls for deepening China’s shift toward free markets and away from state-directed lending.

“These are enormous challenges,” said William Overholt, a senior research fellow at Harvard University’s John F. Kennedy School of Government in Cambridge, Massachusetts, who formerly was a Nomura Holdings Inc. regional strategist inHong Kong. “The government and party bureaucracies have become accustomed in recent years to adopting a defensive crouch rather than positioning the country to move forward.”

Press Conference

The legislature elected Li, previously the top vice premier, by a vote of 2,940 to 3 with six abstentions, for the first of what may be two five-year terms. The premier traditionally holds a press conference following the conclusion of the annual parliamentary meeting, set to end March 17.

Li was appointed the Communist Party’s No. 2 official in November, under Xi Jinping, who became president yesterday.

China’s exports showed the biggest January-February gain since 2010 and fixed-asset investment accelerated, whileindustrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed. At the same time, inflation accelerated to a 10-month high, prompting People’s Bank of China Governor Zhou Xiaochuan to say the nation should be on “high alert” over price risks.

Leaders are trying to keep growth from slowing excessively after decelerating last year to 7.8 percent, a 13-year low, following an average annual rate of 10.6 percent over the previous decade. The benchmark Shanghai Composite Index had dropped 6.7 percent from this year’s peak on Feb. 6 through yesterday, wiping out almost all of 2013’s gains, amid concerns monetary tightening and property curbs will slow expansion. It was down 0.1 percent as of 10:38 a.m. local time.

Growth Goal

Wen, in his final annual report to the legislature on March 5, set a 7.5 percent goal for expansion in 2013, the same target as last year. He called for China to “accelerate the change of the growth model” and “unswervingly take expanding domestic demand as our long-term strategy for economic development.”

“Maintaining high levels of growth is going to become tougher,” said Kerry Brown, a former U.K. diplomat in Beijing who’s now a Chinese politics professor at the University of Sydney. Li inherits “an economy full of growth potential” along with policy dilemmas involving state-owned enterprises, the tax system and housing, Brown said.

Li has stressed that deepening China’s rural-urban shift will drive growth, building on a central theme of his career. China’s urban population of just more than 50 percent is “much lower” than the 80 percent in developed nations, Li said in a November article in the party’s flagship People’s Daily.

‘Complete Change’

“Urbanization is not about simply increasing the number of urban residents or expanding the area of cities,” Li wrote in the full-page piece. “More importantly, it’s about a complete change from rural to urban style in terms of industry structure, employment, living environment and social security.”

Making changes to the system of household registration is necessary to achieve urbanization, Harvard’s Overholt said. The so-called hukou system denies education and social welfare benefits to millions of migrant workers in cities.

Li was born in Anhui province in central China in July 1955 to a father who was a county-level government official. During the Cultural Revolution he was sent to work in the province’s countryside, spending several years doing manual labor while becoming his unit’s party branch secretary.

He was among about 3 percent of applicants to pass the college entrance examinations in 1978, according to Cheng Li, a China scholar at the Brookings Institution in Washington. Li obtained his Ph.D. at Peking University in 1994.

Reform Economist

While Li studied with Li Yining, the “leading reform economist in China,” Li Keqiang has “always played it cautious since” and may face resistance on the Politburo Standing Committee to enacting more significant policy changes, said David Zweig, director of the Center on China’s Transnational Relations at the Hong Kong University of Science and Technology.

Li was named to the paramount Standing Committee in 2007 after serving as party chief in Liaoning and Henan provinces. His time in Henan was marked by an enduring HIV blood scandal and fatal conflagrations that gave him the nickname “Three- Fires Li” and a reputation for bad luck.

The extent of Li’s policy shifts will depend on his relationship with Xi, said Steve Tsang, a professor and director of the China Policy Institute at the University of Nottingham in England. “The premier in China is not the chief executive of the country,” Tsang said. “He is more like the chief operating officer.”

--Kevin Hamlin, Scott Lanman. With assistance from Nerys Avery, Aipeng Soo and Zhou Xin in Beijing. Editors: Scott Lanman, Nicholas Wadhams

To contact Bloomberg News staff for this story: Kevin Hamlin in Beijing atkhamlin@bloomberg.net; Scott Lanman in Beijing at slanman@bloomberg.net.

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