Introduction Zong Qinghou, Chairman and General Manager of Hangzhou Wahaha Group, attended the 2017 NetEase Economists' Annual Meeting on December 14 to analyze China's current economic situation. Zong Qinghou stated, "I believe the world economic crisis is far from over, and it continues to worsen. If it weren't for advanced technology, a world war would have broken out long ago. Now a war would lead to mutual destruction, but big countries frequently attack small ones, so the world is in turmoil. The basic principle of the WTO is to produce where it's cheapest. Developed countries don't produce; they outsource to less developed countries, where labor is cheap. When the public wealth of developed countries is exhausted, an economic crisis occurs. Wall Street gathers all the world's liquid capital, using virtual economy methods to take away the world's money, so money is tight globally." The following is the transcript of his speech: Dear experts and friends, I am honored to be invited to attend NetEase's Economists' Annual Meeting today, to listen to the experts' insights and share my views on the current economy. I just heard Professor Mao's speech, and I agree with his views. Over the past 30-plus years of reform and opening up, we have achieved brilliant economic results. A key factor is the change in production relations, which liberated productive forces. Before the reform, the entire nation was proletarian, living a poor, egalitarian life. After the reform, ordinary people were allowed to own private wealth and the private economy was allowed to develop, awakening our intelligent and industrious Chinese nation, mobilizing enthusiasm, and leading to rapid economic growth. Private wealth ultimately belongs to the state and society But I think that in the development of the private economy, the private wealth of the people, except for what they consume themselves, ultimately belongs to the state and society. If we understand this, I believe our country will develop faster. When wealth is given to individuals, their enthusiasm and sense of responsibility are strong. State assets are also managed by some people, but they don't consider that wealth as their own, so their enthusiasm and responsibility are somewhat lacking. If we understand this, and with the Party Central Committee encouraging the private economy and protecting private property, I think our economy will develop even faster. Now let me share my views on the current economic situation Private wealth ultimately belongs to the state and society, but I think that in the development of the private economy, the private wealth of the people, except for what they consume themselves, ultimately belongs to the state and society. If we understand this, I believe our country will develop faster. When wealth is given to individuals, their enthusiasm and sense of responsibility are strong. State assets are also managed by some people, but they don't consider that wealth as their own, so their enthusiasm and responsibility are somewhat lacking. If we understand this, and with the Party Central Committee encouraging the private economy and protecting private property, I think our economy will develop even faster. I believe the world economic crisis is far from over and continues to worsen. If it weren't for advanced technology, a world war would have broken out long ago. Now a war would lead to mutual destruction, but big countries frequently attack small ones, so the world is in turmoil. The basic principle of the WTO is to produce where it's cheapest. Developed countries don't produce; they outsource to less developed countries, where labor is cheap. When the public wealth of developed countries is exhausted, an economic crisis occurs. Wall Street gathers all the world's liquid capital, using virtual economy methods to take away the world's money, so money is tight globally. Because of the virtual economy, people don't work; working and not working are the same. So the number of people consuming wealth increases, while those creating wealth decreases, so a world economic crisis is inevitable. Our country mainly relies on investment and exports for growth, so the world economic crisis has a significant impact on us, and downward pressure on the economy is high. Almost globally, our economy is still a standout, but I think continuing to use investment and exports to drive growth is not sustainable. To encourage exports, we have depreciated the RMB. I believe the RMB should appreciate externally, maintaining the exchange rate, and certainly depreciate internally. That way, we can enjoy the fruits of other people's labor. If the RMB is strong, the dollar won't flow back, and eventually the RMB will become a strong currency, which is more beneficial for our country's development. The Party Central Committee's direction is to deepen reform, and China's economy will continue to take off. Under the leadership of the Party Central Committee with General Secretary Xi Jinping at its core, many reform policies have been issued since the 18th National Congress. General Secretary Xi's series of speeches have pointed out the direction. We should closely unite around the Party and implement them diligently. I believe our country will soon take off, despite the many problems we face. But now we need to solve the following problems:

  1. Boost domestic demand: expand distribution and increase income The most important issue now is to expand income distribution, increase people's income, and boost domestic demand. Some say over 100 million people have become wealthy, others say over 300 million. Whether it's 100 million or 300 million, in a large country like ours, with so many wealthy people, consumption must be good, and economic growth fast. But I estimate that with a population of 1.4 billion, if 300 million are wealthy, there are still 1 billion or even 1.1 billion people living in poverty. The wealthy can no longer boost consumption; they have everything they need, and it's oversupplied. The key is to boost the consumption capacity of the poor. We don't have oversupply everywhere. In many places, people's consumption is insufficient. Only by increasing people's income can we boost domestic demand, so the RMB won't need to depreciate, and we won't need to encourage exports. In fact, China's economic recovery is the easiest because we have such a large market. The key is to solve the distribution problem. I think the economic issue is about division of labor and exchange. If we don't develop the economy with the goal of improving people's living standards, China still has a long way to go. We have many things to do, and many people are still at low income levels.
  2. National fiscal and tax system reform is key On one hand, reduce corporate tax burdens and reduce taxes on individuals, including social insurance and housing fund. Currently, social insurance and housing fund account for over 60% of workers' wages and bonuses, plus personal income tax. When people's income increases, the state takes it back through taxes, so the money they can actually spend is insufficient. Additionally, I think both private and state-owned enterprises can implement employee stock ownership. I believe full employee stock ownership is a way to increase people's income. When employees are also owners, their enthusiasm increases. Our company has full employee stock ownership, and income has risen significantly, loyalty is high, and enthusiasm is strong, so the company develops well. If we can improve people's living standards, everyone can live and work in peace, and society will be stable. The Party has proposed doubling people's income by 2020. Recently, I've seen the State Council and the Party propose various measures to increase people's income. I think if these measures are truly implemented, there is great potential. Reducing corporate taxes can also attract foreign investment. Previously, domestic investment was low-end. Now Western countries, especially Europe, have poor economies and hope for investment and help expanding markets. We should seek higher-tech investment to develop our economy. To achieve this, I think we first need to streamline the civil service. The civil service is too bloated, and they hire many temporary workers, which burdens the people. Also, the government invests to meet GDP targets, but many government investments are ineffective. Everywhere is building new airports, closing old ones, increasing investment to boost GDP. This is risky; if it continues, China will also face a financial crisis.
  3. Revitalize the economy: persist with approval system reform Third, approval system reform. We need to revitalize enterprises. Politically, we need high unity; economically, we need full liberalization. At the beginning of reform and opening up, we relied on a few words: "opening up to the outside world, and delegating power and transferring benefits internally." At that time, it was the central government delegating to local governments. Now, we need to open up not only externally but also internally, relaxing restrictions on private enterprises. Also, we need to delegate power and transfer benefits to the people, solving the approval system reform. I think the approval system reform, despite being ongoing for a long time, hasn't been truly successful. Although some approvals have been reduced, there are still many approvals during operation. It's just a change in form, not substance. The problem isn't solved. I think we should set standards; if you meet the standards, you can proceed. But civil servants should also have a post responsibility system. You are responsible for the part you manage. If an enterprise has problems, you should be held accountable. That way, market issues are managed by the market, and government issues by the government, truly revitalizing the market and enterprises.
  4. Strengthen urbanization and solve employment Fourth, we need to strengthen urbanization and solve employment. It's often said the demographic dividend is gone. I think the statistics are wrong. The post-90s population is still large; we have a large labor force. Recently, Premier Li said China has 900 million workers, 170 million of whom are highly educated. So we still have a demographic dividend. The key is that in the eastern coastal areas, there's a labor shortage on one hand and unemployment on the other, because the cost of living is too high; without high wages, people can't survive. This creates a contradiction. I think we should promote urbanization, not big cities, but small cities. We need to transfer traditional enterprises from the eastern coast to county towns in the central and western regions, allowing over 200 million migrant workers to return home and work, settle in county towns, and through land transfer, achieve intensive agricultural production, increasing farmers' income. This way, some will become farmers, and we can truly solve urbanization and the transfer of surplus rural labor to cities.
  5. The internet is a double-edged sword; control the virtual economy Fifth, I think the virtual economy has gone too far. We need to control its development and vigorously develop the real economy. The real economy creates wealth; enriching the people and strengthening the country depends on it. Moreover, much of the virtual economy is funded by foreign capital and is highly destructive to our economy. Affected by cyber attacks, the economy has declined in the past two years. I noticed that well-performing, famous enterprises have been attacked online, with some servers coming from abroad. Recently, I saw reports of foreign institutions and enterprises talking down our economy and buying up excellent domestic enterprises at low prices. So we must be wary of the internet as a double-edged sword; if not managed well, it can have a huge impact on national economy and security.
  6. Real economy I believe developing the real economy is the fundamental condition for the great rejuvenation of the Chinese nation and the Chinese Dream, and also for enriching the people and strengthening the country. I feel President Xi is focusing on two things: strengthening the military to avoid being bullied by foreigners, and developing the economy to achieve a moderately prosperous society. Both depend on the real economy, especially manufacturing. If we rely only on GDP, historically our GDP accounted for over 30% of the world, but that was based on silk, porcelain, and tea, not guns and cannons. The Eight-Power Allied Forces sent just over 30,000 troops and defeated the Qing Dynasty. Without a strong real economy and manufacturing, enriching the people and strengthening the country is impossible. So we must vigorously develop the real economy, especially high-end manufacturing. The difficulties of the real economy mainly include the following: Currently, the real economy faces great difficulties and problems. First, taxes and fees are relatively high. Costs are high, profit margins are low, and it's hard work, making survival difficult. Many people don't want to engage in the real economy. Recently, we've been talking about reducing taxes and fees. We've also compiled data: this year's fees have not decreased compared to last year; some have increased, especially environmental protection fees, which have risen too much. We can't just have green mountains and clear waters while starving. Now environmental fees and penalties are set, and certain things are banned. But the mechanism hasn't been solved. For example, capturing carbon emissions and converting them to alcohol, reducing energy consumption, and protecting the environment. Singapore treats sewage and turns it into tap water. So we must solve environmental problems through technology. Our coal resources are the most abundant, but now coal is banned, and we rely heavily on oil and natural gas. However, coal can also solve environmental problems if we address the fundamentals. Many places require us to stop production due to weather pollution. I think these factories have passed environmental assessments and been approved by environmental departments. If they are arbitrarily shut down, shouldn't the authorities bear the losses? If we do this, how can our economy develop? Without economic development, how can we improve the environment? So I think the real economy has contributed greatly to the country. Now it should be given a period of rest and recuperation, with lower taxes and fewer fees. Look at Trump: he proposed cutting corporate tax from 35% to 15%, and imposing a 30% tax on companies building abroad, to bring the real economy back. A country without a real economy cannot become strong and prosperous. If the government lacks money, it imposes taxes on enterprises. If enterprises are squeezed dry and die, who will pay taxes? The business tax reform was said to reduce taxes, but I see no reduction (applause). They say tax revenue fell by 500 billion, but I think it's because they couldn't collect taxes, and they used uncollected taxes as a sign of tax reduction (more applause). Second, I think we need to reduce investment costs. Industrial land now requires bidding, and the Ministry of Land and Resources sets prices nationwide. I think the Ministry of Land and Resources is just selling land. Industrial land now costs hundreds of thousands to millions per mu. Who would invest with such high costs? Moreover, water, electricity, and gas are state monopolies, and using them and building factories require high fees. Many approval steps also cost money, like third-party assessments for environmental impact, energy efficiency, clean production, etc. These are costly and troublesome. With such high investment costs and uncertain profits, who dares to invest rashly? Even so, the government is unwilling to give land to industry and manufacturing because real estate fetches higher prices. We must resolutely cancel the land policy. High housing prices make it hard to retain talent; young people can't afford a house in their lifetime, can't settle down, affecting social stability. Farmers can't afford houses, can't achieve urbanization, leading to endless problems. Migrant workers no longer return home to work but buy houses in county towns, but if prices are too high, they can't afford them. How can they return and settle? The money for selling land is from banks, the money for building houses is from banks, and the money for buying houses is from banks. Real estate has hijacked the banks. Once there's a loss, the bank's money, I think, is lost by the people. We can't expand this bubble any further. The first step is to require local governments to compensate according to the Land Administration Law when expropriating land. We have laws, but our land expropriation is illegal. Originally, compensation should be based on the previous three years' output, up to 30 years, which would be a few thousand yuan per mu. Now it's tens of millions per mu. In the future, all land should be turned over to the central government to eliminate land finance, reduce housing prices, and ensure that young people without houses can rent or buy, start families, and contribute to the country's development with peace of mind. Third, we need proactive fiscal policies. We should support high-tech industries with funds, and have a deep understanding of various industries. For products of eliminated enterprises, whether state-owned or private, we shouldn't blindly lend. We should treat state-owned and private enterprises equally, and appropriately lower loan interest rates. Currently, banks take up the profits of the real economy. Deposit rates are generally 3% to 5%, while real economy loans are over 10%. Why can't loans be issued? Because borrowing leads to losses, so development is impossible. I think the state shouldn't set profit targets too high, and banks should jointly establish venture capital funds with advantageous enterprises. Now the US holds a large amount of high-tech, but these technologies weren't all invented there; they were bought by US venture funds from around the world, often at early stages and cheaply. If 2 out of 10 go public, they make a profit. I think we should also find a way to master more advanced technology to help our manufacturing overtake and accelerate development. Fourth, improve the execution of central policies at all levels of government. The pace of deepening reform is slow. I think the main reason is poor execution of central policies by local governments. Many problems get stuck at the central level because they cling to power and interests. What's worse is that laws passed by the National People's Congress cannot be implemented without departmental implementation rules, and these rules often contradict the law. NPC laws can be ignored, but departmental regulations must be followed. At the township and county levels, they implement departmental regulations because non-compliance is checked and punished. Central documents, State Council documents, and NPC laws are sometimes principled and directional, and no one checks implementation. So they can be ignored. If these details don't change, our reform won't deepen. I suggest that the Party Central Committee, State Council, and NPC issue more detailed documents and laws. For example, the central eight-point regulation is clear, and with discipline inspection, implementation is effective. I hope economic policies are as clear as the eight-point regulation, with checks. Those who don't implement should face administrative penalties. Then orders will be smooth, and the central reform intentions will be carried out more resolutely and quickly. Fifth, consider revising foreign trade mechanisms. After the new US President Trump took office, he opposes globalization and free trade. European and American countries also refuse to recognize our market economy status, putting us at a disadvantage in foreign trade. Especially the massive import of grain and agricultural products has taken away farmers' livelihoods, which is very dangerous. A country with 1.35 billion people that doesn't grow its own grain and can't solve its food problem will face a big problem if something happens. Moreover, our foreign investment exceeds domestic investment, which I think is abnormal. Many foreign investments lose money. I think foreign trade should adhere to equal, mutually beneficial trade. We open up to others, and they should open up to us. If they don't open up, we shouldn't either. At the same time, we should protect our agriculture and related industries. Why does Japan ban rice imports? Imported rice faces high tariffs. Why can't we adopt such policies to protect our farmers' interests? I think no country has the ability to economically sanction us, and we're not afraid of sanctions. Now they're trying to curry favor with us. Why can't we confidently defend our interests? Also, our enterprises abroad are facing interference and increasing difficulties. Should we encourage the use of foreign talent to help improve our technology, help manufacturing move from low-end to high-end, and at lower cost? Deepen reform, revitalize the economy, and realize the Chinese Dream of national rejuvenation as soon as possible. Now revitalizing the economy is an urgent matter. Achieving a moderately prosperous society, national prosperity, and the Chinese Dream all depend on economic revitalization. To stand tall among nations, not be bullied, and be respected, and to say Yes or No to anything in the world according to our will, we need active revitalization. Moreover, the world is in an economic crisis, with contradictions and difficulties in both developed and developing countries. No country can suppress our peaceful rise. In such a strategic opportunity, we must seize it. Under the wise leadership of General Secretary Xi Jinping, deepen reform, work hard, and strive to build a prosperous and strong motherland. I firmly believe that the Chinese nation is an excellent nation. As long as we strengthen unity, we can achieve our goals. Thank you all. Source: Financial Conference Information (ID: fci0630) -END- The best learning platform for FMCG distributors in China Focusing on providing professional, practical, and applicable tutorials for enterprises and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent article selection | 002 Distributor market operations | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales improvement techniques | 006 Channel expansion | 007 Managing distributors | 008 Distributor development | 009 Distributor internal operations management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's eighteen skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brands | 016 Distributor B2B transformation | [Long press QR code to follow]