Jin Liqun - Chairman, China International Capital Corporation HARDtalk

Now on the BBC, it's time for HARDtalk.

White Welcome to HARDtalk from Beijing. Since the financial

meltdown of 2008, China has been the key hive of global economic growth.

Here in Beijing, it is easy to see how China's brand of capitalism has

transformed infrastructure and generated unprecedented wealth.

Visit any Beijing mall and you see China is fast becoming a consumer

society. This is where those with cash to splash conduct their love

affair with luxury. How do you feel about the Chinese economy right now?

I think it is growing very fast, and it is very good. I am already

45`years`old. When I was young, it was not like this. Beijing was

quiet, very traditional, with a small house. For me, it has become

very modern. If you have money, you can have anything. Do you feel

confident that this growth in Beijing and then China can continue?

Yes, I am very confident about that. The gap between the rich and the

poor in this country is wider than ever before, and no doubt the

biggest winners in this society profit from their access to power.

Cronyism and corruption threatened to have a corrosive impact on public

perceptions of China's rulers. If you want to have a good job, or a

better life, you have to know people. That is my perspective. You

have to know people to help you to get that, or you work really,

really, really hard. Like, you have no life yourself, and then maybe you

can get a better position, if you're lucky. So you definitely need

connections. It is a human network here. It all depends on who you

know. And a lot of that is to do with the party, and also the people

around the party who have the money? Yes, absolutely. It is all about the

game power, the money. So if you have money, you can have some power.

If you have some power, you can have a lot of money. Ultimately, China's

stability and the supremacy of the Communist Party depends on the

soundness of the economic foundations here. Right now,

confidence is giving way to insecurity.

At the heart of it is a fear of a debt`driven property bubble. If that

debt turns toxic, than the whole world economy will feel the impact.

My guest today is leading Chinese financier Jin Liqun. How worried

should we all be about the Chinese economy?

From his 38th floor executive suite, Mr Jin Liqun has a bird's`eye view

of Beijing's unstoppable growth. The 30 years ago, it was a suburban

area with virtually nothing. If he is worried, he hides it well. Jin

Liqun, welcome to HARDtalk. Thank you. China is in a transitional

phase. No longer the economy committed to breakneck double`digit

growth, looking for a pass to sustainability. But that is not

easy, is it? Of course. I would rather say the transition will be

tough, formidable, daunting. You can have different kind of adjectives to

describe this. It is really tough, after almost two decades of faster

growth. We really need to do a restructuring in a serious way. One

of the most important global investors, George Soros, has lost

faith in China. He says that one of the Chinese growth model has run out

of steam. Well, first of all, I would say China is a country which

defies prediction. I remember, many years ago, right after the outbreak

of the Asian financial crisis, economists had a cover photo, a

picture, with a big headline about sick China. It did not happen. Also

after the outbreak of this financial crisis, some people predicted

China's economy would be losing steam and suffering major setbacks

in our growth. This did not happen. This is because the Chinese growth

pattern is not something static, it is dynamic. We change, we adapt.

Well, you have to change and adapt, because you have some very obvious

problems. Right now, I think many people in Beijing are particularly

focused on one problem, which comes out of the old economic model, and

that is massive industrial pollution, which produces the smog

that overhangs this city right now. It is a product of economic growth,

which has been dirty. How do you change that? This could have been

resolved. As you know, the Chinese government has declared war on

pollution, as it declared war on poverty 20 years ago. If you look at

the history of Western countries, this smog, this kind of thing, was

pretty common. London was a case in point. But this kind of problem was

resolved in the course of economic and social development, and we have

every confidence we can handle that. Why are you so confident, when the

Chinese government set out rules, for example, about closing certain

sectors of industry, shutting off traffic and closing schools if

pollution reached certain levels, and then when the pollution reached

those levels, just weeks ago, those rules were ignored and the public

was infuriated? In some cases, yes. That is why it

is very tough to keep environmental standards intact. When we move

forward in continuing growth, in pushing forward the transition of

the economy. Let me tell you you this. I don't think it is realistic

to expect every locality, every local government, every institution,

to come up to standard at the same time. Violations of the rules would

happen, but I'm sure we would toughen up our stance on this issue.

Perhaps a less visible way in which there is the concern about the

status quo in the economy is, moving away from pollution, an invisible

problem, and that is of a rotten core to the system of finance. That

is a massive problem of debt in the shadow banking system, as it is

called, which again threatens to undermine China's economic

stability. Is there a danger of a toxic debt crisis in China today? I

don't think so. I think debt level is a big issue. We need to deal with

the debt problems in a very serious manner, but I don't think there is

an impending debt crisis in China. Let me give you the reason why this

is not going to happen. First of all, it is wrong to talk

categorically about the debt. Most of the debt incurred by the local

governments happened in coastal areas, and those governments are

pretty good in dealing with this kind of issue, because these are

fast`growing areas, and the government's coffers are pretty

strong, so they can handle that. But if you go to to the lower levels of

government, the western part of the country, which is not as advanced, I

think the debt burden could be a big issue. But only handle that? First

of all, it is very important to cope with the new debts. We should not

allow it to blow up. But we have to differentiate between the different

kind of investments on the basis of this debt. If the project financed

by the debt is a good one, allow it to be completed. If there are some

projects which are really bad, you can shut them down. If you look at

the central government, our budget deficit is very, very low, 2.1%. Way

below master treaty, even though we're not part of it. The economy

would be going forward, and will be generating new resources to deal

with this. So if you notice these kind of factors, the government

would keep the economy going, and we would curtail the continued growth

of the debt, and we would take a step`by`step approach to deal with

the debt. The crisis would not be happening. If it is not handled

well, it could be a real crisis. Is it time for the state in this

country to radically disengage from the economy, from all of the key

economic levers, including the financial system, manufacturing,

production? Because right now, the state is in the thick of everything.

The word radically may not be the right word. I would say steady

progress towards the redefinition of the role of the government and the

role of the businesses. I cannot predict what is going to happen 20

or 30 years down the road, but I'm pretty sure, as you can see from the

decision`making of the central government, the government would

keep it at arm's length with these business operations. The government

role would be redefined and the market would play a decisive role.

All this indicates that government would keep its hands of the

operations of the business. Except, people have talked about this sort

of change for a long time now in China, and yet, the latest Heritage

Foundation Index of Economic Freedom report has China in 130 Seventh

Place, and they talk continually over reliance on public investment,

the dominance of the party within the economic system, which they say

undermines the rule of law. They say the judicial system is highly

vulnerable to political influence and corruption. That is the reality

today. You know, 30 years ago, if anybody tells you what is going to

happen in China, what would have been done, given a particular time

frame, probably a lot of people would not believe it. If you look at

China today and compare it to the China of 30 years ago, it was such a

drastic change. After 30 years of reform, we certainly have

accumulated a lot of problems. Corruption is a big issue. How big,

in your view? I think it is very hard to quantify. But I would like

to say, the government is very, very serious, cracking down on

corruption. As you can see, the leadership take it very seriously.

And I am very confident we can deal with this problem. But the problem

is, the leadership itself is a part of the problem. The Financial Times

just last year ran this fascinating analysis of the legislatures in

China, the National People's Congress, the consultative people's

committees, and there are more billionaires at the top of Chinese

politics than in any other country in the world, and this is supposedly

a Communist system. What you have here is power and

money married together. I would like to say, you have to differentiate

between the leadership and individual members in the

leadership. You have to differentiate the

Chinese Communist Party, the Chinese government, from individuals who

serve in this party and government. Now, I agree with you, this

corruption is a serious issue and problems has to be dealt with very

seriously. But, you see, in the course of

development, when we shifted from this economy 30 years ago, under

that kind of system there was nothing, virtually nothing for

people to lay their hands on and the new system based on a market

economy, I think it is not a surprise that you have to look at

the determination of the new leadership in cracking corruption.

What you have here is power and money married together. I would like

to say, you have to differentiate between the leadership and

individual members in the leadership. You have to

differentiate the Chinese Communist Party, the Chinese government, from

individuals who serve in this party and government. Now, I agree with

you, this corruption is a serious issue and problems has to be dealt

with very seriously. But, you see, in the course of development, when

we shifted from this economy 30 years ago, under that kind of system

there was nothing, virtually nothing for people to lay their hands on and

the new system based on a market economy, I think it is not a

surprise that you have to look at the determination of the new

leadership in cracking corruption. Well, we will judge them on results,

won't we? I think President Xi Jinping developed this phrase, we

are going after the tigers as well as the flies within the system.

There are tens of thousands of officials who have been disciplined.

There are 10,000, apparently, who have been fired from their jobs, but

these are mostly flies. Not necessarily flies, I think the

ministers, governors are pretty senior officials. Hang on, there is

a serious point. One activist, campaigner called for every senior

member of the Communist Party to be fully transparent about their own

personal assets, and he got locked up. I am not very clear about this.

Let me ask you one question. How many governments in this world who

could be so decisively anti`corruption? How many countries

in this world could tell the rest of the world we have put so many people

in prison because of corruption? This happens only in China. And if

you look at the number of developing countries in the early stage of

industrialisation, corruption was a rampant. If you could do this, why

not China? I firmly believe that this new leadership is really

serious about that. You cannot have a whole bunch of your so`called

tigers. Tigers are more or less limited. You can also say that

senior leaders are also a big problem for us to deal with. But, in

the end, it seems the party will tell the people it is going to clean

out of the stable, it is going to tackle corruption, just as it is

tackling, as we discussed, the pollution issue. But what it will

not allow and will never allow is a challenge to its own supremacy, and

surely as China develops and transitions that has to come, too,

doesn't it? Probably I think the outside world may not understand

fully the operations of the Chinese system. First of all, at this stage,

most of the Chinese people acknowledge the Communist Party

should be the leading party, because the most of talents are in this

party. I am very much proud to be associated with this party, I am one

of the members. I have been devoting my life... If I may say so, you have

been a huge beneficiary, you have been a winner from the system and I

understand why you feel a debt of gratitude and loyalty to the party.

I dare say there are some in China who do not feel way about the party.

The point is, they are not able, they are not allowed to express an

alternative view, a view which says we no longer want a one`party

system, we want a multiparty system, we want to vote for people who want

to kick the communists out. They are not allowed to do that, whereas in

another developing country, comparable, maybe, India, they are

most certainly allowed to kick out the powers that be if they feel they

have not done the job. I am not surprised you tell me there may be

some Chinese that want to kick out the Communist Party. But I can tell

you the Communist Party enjoys the broadest support of the people,

otherwise we would not have peace and harmony in this country.

Otherwise we would not be able to implement all of these policies. But

we have to define democracy in different ways. Democracy is not a

something for the people to enjoy, simply go to the ballot box.

Beyond the ballot box you have nothing to do. In China, we may not

have everybody going to the ballot box at this moment, but beyond the

ballot box, decision`making is not simply the purview of the top

leadership. Look at the twin conferences. I do wish you could

understand Chinese. If you read all of this, bloggers and newspapers or

something, all of those petitions and critical comments are really

very, very sharp. Can you imagine that in a country which is supposed

not to be democratic, which I certainly would dispute that

concept, how come in a non`democracy the people raise so many sharp

questions, criticising government from bottom to top? They can do it

as long as they do not cross the line and as soon as they cross that

line, and are seeing to be challenging the party itself, their

access to the internet and indeed their access to freedom, is cut off.

``are seen. I am not defending this, but I am going to tell you one very

important point. In a country at a particular stage, people would not

really enjoy a very good life, we would not really enjoy peace if the

country is thrown into chaos. The Communist Party of China made

mistakes in history, particularly, for instance, in the late 1950s and

1960s, during the Cultural Revolution. But the Communist Party

had the guts to acknowledge we did something wrong, and we want to

correct all of those problems. This is what the party did over the last

three decades. It is really true the Communist Party enjoys broad support

of the people, otherwise we cannot have this kind of talk in my office!

I had a very interesting discussion on similar themes in the office of

the Indian Finance Minister a couple of weeks ago. I know him well. I

said to him, you have failed on all sorts of counts compared with China,

China's infrastructure, their nature of urbanisation, China's lifting of

people out of poverty is so much more successful than yours in India.

And you know what he said to me? He said, in the end, the Indian people

would rather live in a noisy democracy than under the

dictatorship, the authoritarian rule of the Communist Party in Beijing.

My answer to you is that the majority of the Chinese people would

enjoy living in China, enjoy the peace and prosperity in a country

where the Communist Party plays a big role, rather than put themselves

in a different country and to suffer. In your heart, do you think

the next 30 years will be as good for China as the last 30? China can

be doing better in virtually every respect, because our nation is one

which is always taking care of soul`searching. Our nation believes

that self`criticism is important. We have to know what goes wrong in our

system, in our personal behaviour. Just don't look at what you have

achieved. That is why, as you know, we openly confess we have made

mistakes in our economic policies, social policies, we need to adjust

and change. It is very hard to find any other nation in this world which

openly says, we did something wrong. Probably the UK is close, because I

follow your history very closely. With regards to your history, I

would say a lot of your people, academics, the government, both

parties, you had a review of your history in the 19th century and you

want to adjust this kind of thing. That is something. We are doing it.

I can tell you, we will have a better education for the younger

generation. The new leadership and the leadership who are going to be

taking over from now on will be able to manage and handle very tough

issues faced by our nation. You just said, probably I am part of the

system, I am privileged. Actually, I was not privileged. I am not from a

privileged family. A lot of people who take senior positions in

government worked all the way to these positions. Our system will

give people the opportunity of learning hard, working hard, and if

you do a good job you will be recognised. We have to end there.

Jin Liqun, thank you very much for being on HARDtalk. Thank you so

much. It is turning much colder. It is

fairly mild and wet across the south`east. The mild air is being