 Hello. Good afternoon. My name is Chris Johnson. I'm the Freeman Chair in China Studies here at CSIS. Thank you all for coming. Despite the snow, we weren't sure. We're going to make it today, but fortunately the road crews seem to have largely done their work. Today's session will be looking at the third plenum primarily, and we are very blessed here to have with us one of the authors of the third plenum document that has gotten so much attention in both Chinese domestic and Western and other foreign media since the plenum in November. And we are very honored to be hosting Mr. Zheng Xinli. He is Permanent Vice Chairman of the China Center for International Economic Exchanges and former Vice Minister of the Central Policy Research Office of the Central Committee of the Chinese Communist Party, which is really the party's official think tank. So we're very lucky to have Mr. Zheng with us here today. Born in April 1945, Mr. Zheng earned his master's degree in economics. He's a senior research fellow focusing on macroeconomic theory and policy. He attended a number of plenary sessions of the Central Committees of the Chinese Communist Party of China and participated in drafting, as I just mentioned, the report of the work of government, the eighth five-year program, the ninth five-year plan, the tenth five-year program, and the eleventh five-year program. So certainly someone with tremendous experience walking through China's economic reform challenges. He's been long dedicated to research and study of economic theory and policy, and he's done profound macroeconomic control and medium to long-term development policy inside the system, in which he generates unique insights as well. His work and papers, which add up to over a million Chinese characters, are included in volumes one, two, and three of the most junctually economic anthology in China, industrialization in the 21st century. From 1978 to 1981, he was studying at the Graduate School of the Chinese Academy of Social Sciences and graduated with a master's degree, as I mentioned, in economics from the Industrial Economics program. From 1981 to 1987, he served as the division chief level researcher and then deputy team leader at the research center of the secretariat of the Central Committee of the CCP. From 1987 to 1990, he acted as the deputy chief economist of the State Information Center under the National Development and Reform Commission. And from 99 to 2000, he worked at the State Planning Commission as the deputy director general and then director general of the Policy Research Office and deputy secretary general and spokesman. From 2000 to 2009, he was the vice minister, as I mentioned, of the Policy Research Office of the Central Committee, adjunct professor and doctoral advisor for Renda of China, Central University of Finance and Economics in the Graduate School of the Chinese Academy of Social Sciences. So, again, what a distinguished individual that we're pleased to host here with us today. The format will be Mr. Jung will come up and deliver his formal remarks. We're going to do a consecutive translation. So we'll be having pausing to have the interpreter catch up. And then we'll do some questions and answers with the audience. As always, we will follow standard CSIS procedure. If you have a question, please raise your hand and identify yourself and do ask a question rather than a monologue. Without that, with no further ado, we'll have Mr. Jung come up and deliver his speech. Ladies and gentlemen, good afternoon. In the spring season, my colleagues from Beijing came to Washington to be here. I am very honored to be here today. At this time of the year, which is the transition between the season of winter and the season of spring, I am very honored to be here with my colleagues to be in Washington and to meet my counterparts in CSIS to introduce the very important decision on comprehensively deepening reform that has been adopted in the third plenary session of the 18th CPC Central Committee. Last November 2013, the third plenary session adopted a very important decision on comprehensively deepening reform that has been adopted in the last seven years. I am very honored to be here with my colleagues in Washington and to be here with my colleagues in the first plenary session of the 18th CPC Central Committee. The third plenary session adopted a decision of the Central Committee concerning the major issues on comprehensively deepening reform, which laid out a overall very comprehensive blueprint for China's reforms in the economic, political, cultural, social, ecological, and party building dimensions in the next seven years, and it generates a tremendous impact on China's future trajectory. The reform that we are involved in has more than 300 examples. Today, I would like to give an introduction to the reform on the economic side. Because this decision came out that the reform on the economic side is the key point of the whole reform. The reform on all aspects of it is an important and important part of the reform, and I am familiar with it as long-term economic problems. I would like to briefly introduce the four major breakthroughs on the economic and political reform. I would like to leave more time for you to discuss it together. Over 300 different reform measures have been put forward, but today I will focus on those relevant to the reform of the economic system for two reasons, because the reform of the economic system is the most important part in this decision. It serves as a driving force of the rest of the reform measures. And the second reason is that I personally have been devoted to economic issues for a long time. So today I will briefly introduce the four major breakthroughs in the reform of the economic system, and then I'll leave time for the Q&A session. The first major breakthrough is that the market will play a decisive role in the allocation of resources. In the past, we said that the market should play a basic role in the allocation of resources, but this time we changed the word basic into decisive, which is a proof that the Communist Party of China has deepened its understanding of the market. So I would like to briefly introduce the four major breakthroughs that the Communist Party of China has deepened its understanding of the market economy. And by letting the market play the decisive part, we're saying that the market players should independently make decisions to allocate resources and give full play to the role of the law of value. And to put into a simple, more simpler words, it is that the enterprises should, based on the signals of market prices, decide on their own which project to undertake, which products to make, and how many products to make, and the government will play no part in the operations of these enterprises. At least two major impacts can be generated by this decision. The first is that a balance between supply and demand will be gradually reached among different sectors based on the market decisions on the allocation of resources. And based on the distribution of labor according to market demand. When supply, of demand. The prices of this certain product will be more than it is what it is actually costs. So making these kind of products will rake up a lot of profits, so it will absorb a lot of social funds and it will increase the supply. For example, in the financial industry, because in the past, there was a shortage of people who got a lot of profits, so their income rate is higher than social average income rate. In the future, if we absorb a lot of social funds, then it will change the financial industry, the supply and demand situation, and reduce the company's financing costs. For example, the financial sector in China has long been the monopoly sector, so there has been a, the profitability of this sector is much higher than that of the rest of the economic sectors. So by absorbing social funding in this sector, we will be able to alter the landscape where supply falls short of demand, and we will achieve a balance between these supply and demand. If the industry is supply and demand, then the market price of this industry will be lower, then the profits of this industry will be very low, and they won't even make money. Then the funds will be absorbed from this industry and invested in other industries. For example, now steel, in China, a ton of steel, the profits of pure steel are 4.6 cents, so you can't even buy a bottle of ice. If there is a market decision-making configuration, then you have to take it out and invest in the financial industry. But due to the rise in the market, the supply and demand in some sectors is much greater than demand, so the prices will not reflect the actual costs, and there is almost zero profit in such sectors. So by taking some of the funds out of these sectors and to put them in other sectors, we will be able to achieve balance between different sectors. For example, the steel industry actually at present, the profitability of making steel is very, very low. It's about 4.6 cents, so it's not even enough to buy a popsicle. But if we let the market decide the allocation of resources, we will put the funds into the financial sector. However, this kind of movement now is blocked by administrative segmentation and market blockage, so we need to address this issue. And the second major impact is seen within a certain sector, which is that we will let the most competitive enterprises win by putting funds into those enterprises that have the most promising future, and those backward or those enterprises that lack behind will be taken out of the competition. As we all know, capitalism has not emerged very, very long time ago. It's been only a little more than 100 years, but in these over 100 years, it has created productive forces that are much higher than the aggregate of the production forces in the previous human history. And the reason that capitalism can magically unleash the productive forces is that it has set up a market economy mechanism, and this is what we are trying to obtain, that is through this new round of reform, we have to set up a market mechanism in both our economy and society. So the change from the word basic to the word decisive is not just semantic. We are trying to set up a market economy mechanism, and I think it will generate a decisive role to China's overall economic system. Also, it will have a major impact on China's cultural, social and ecological systems. I think this is the most important breakthrough in this new round of reform. The second major breakthrough is that a mixed economy should be the major approach to materialize our basic economic system. This is a new breakthrough in CPC's recognition of a basic economic system. And now we have laid out some relevant reforms under this general principle. The first is that we will change our way of managing state-owned enterprises. Previously we focused on managing assets, and now we will shift to managing capital. And by so doing, we will establish several capital management companies and to hold shares or control shares in the enterprises that are involved in some basic and strategic industries. And based on the amount of the shares, they will have the voting power. The second is that the state-owned enterprises will absorb the capital into the stock market and fund all the assets. The fund all the assets will stand to about 40% in the entire economy. In the future, the assets will gradually increase. And the second major approach is that the state-owned enterprises will absorb private capital to invite private capital to hold shares in the SOEs. Now private capital takes up around 40% of the overall economic landscape, and in the next 10 to 20 years we are hoping that the number can rise up to 70%. And a mixed ownership will be the basic form of the company's property rights system. That is to say there will be both state-owned and collective shares and individual shares in a company. And in biological terms, we will give full play to the advantages of a hybrid system and to give each part the different ownerships its best role to play. And the third thing we are going to do is to let this mixed economy is that the mixed economy will allow employee stock ownership plans. This is a decision we've made after we looked into the successful experiences of both domestic and overseas enterprises including some century-old companies in the United States. Companies like IBM, GE and Boeing have not only... the stocks of these companies are held not only by those at the top. But also by the general employees. So the management rank of these companies have been somehow handcuffed in terms of their daily performances and this is a very successful practice. Both the non-public ownership and the mixed economy will enjoy an equal access to opportunities and to rules and resources. The third major breakthrough is the breakthrough in the rural land management system. We will allow farmers to take their income from mortgaging, guaranteeing and transferring their contracting rights of their land. The residential plots and the houses of these farmers are allowed to be mortgaged to be guaranteed and to be transferred. The farmers, the collectively owned profit-oriented land, held by the farmers will have an equal access to the land market with the national, with the state-owned land. They will have the same rights and same prices. This means that the third plenary session is giving three big bonuses to the farmers. So how big is this bonus? In China there are 1.8 billion MoO arable land and for the subcontract fee of these 1.8 billion land it is 1 trillion RMB every year. And the second big bonus amounts to 51 trillion RMB. It is about the same amount of the total resident deposits in China's banks. However, these bonuses are just calculated theoretically whether the farmers can get these bonuses will depend on whether their land can be mortgaged and can be transferred. But anyway it will effectively narrow the income gap between urban and rural residents and will steer China away from the mid-income trap. The fourth major breakthrough is that we allow private capital to set up small to medium sized commercial banks. Meanwhile we will establish local oversight agencies and handle the oversight authorities to local agencies. But these small to medium sized commercial banks will be limited to borrowing and loaning within a certain region and this is an experience that we learned from the United States. Also we will establish the deposit insurance and loan guarantee system so as to diffuse risks through market mechanisms. Also another focus of the financial reform is to develop a multi-layered capital market and promote the convertibility of RMB under capital account. Six major potentials will be unleashed by these four major breakthroughs. The first is a potential in consumption. As we speak the consumption rate in China languishes at only 34%, the number in the United States is 70%. If we increase the proportion by 10% each year there will be approximately 8 trillion RMB worth of consumption generated so it will have a major impact on driving our economy. The second major potential is that the third industry will develop rapidly. Now China's third industry will have only 36% of the total number of employees. The United States will have 80%. The second potential is in the tertiary industry. We will see a surge in the tertiary industry at present. The number of people working in the tertiary industry take up only 36% of those compared to the total three compared to the rest of the national economy sectors of national economy and the number in the United States is 80%. So if we raise this proportion to that of the average of developing countries that is 50% it will generate approximately a GDP worth 110 million RMB. The number of international professionals we have developed in the past year is 6 times as much as the US. The number of people working in the tertiary industry is 3.6 times as much as the US. The number of people working in the tertiary industry is 2.8 times as much as the US. Maybe in 3 years we will have the chance to increase the number of international professionals in China to the US. So that we can start a new business with technology innovation. In 2010 in terms of the international patent application the United States is 6 times that of China. And in 2011 it is 3.6 times. In 2012 it is 2.8 times. So we are hoping that within 3 years China will catch up with the United States in terms of our international patent application. So this is a major progress in technology innovation. And the biggest change is that our bank's M2 has already received 1.2 million. The financial assets of our banks have reached 1.6 billion. The foreign exchange is now at 3.8 million US dollars. And through financial system reform the amount of money will be reduced. China, the M2 in China's banks is around 120 trillion RMB. The financial assets of Chinese banks are 160 trillion RMB. And our foreign currency reserve is around 3.8 trillion RMB. So we will generate very great stimulus into the capital stock in China. Fifth, there will be a great potential in the provision of labor forces which will be stimulated. At present, there are 260 million rural labor force in China through agricultural modernization over the next 10 to 20 years. 200 million rural labor force will be transferred to the secondary and tertiary industries. In the United States, an individual of a rural labor workforce works on several thousand move up to 1 10,000 move. However, in China, a farmer operates on only 6.4 move land. This is a gigantic gap. So China needs to upgrade its agriculture and to raise the rural productivity. The sixth potential is in the provision of land. At present, there are 170,000 square kilometers of residential plots in China through the urbanization process and through more intensive use of this land. These 170,000 square kilometers of land will not only meet the demand of urban construction land but also the rural labor land for rural labor. If we successfully stimulate the potential in the above mentioned six major sectors through this new round of reform, China's economic growth will be sustained in a healthy way up to 2030. China's economic growth brings new economic opportunities for China-US economic cooperation. The first opportunity is an expanded demand for consumption for commodities. There will be a surge in our demand for imports from the United States like in automobiles and pork and animal grains. Secondly, China's upgraded industry will drive up imports of technology equipment and electronic devices from the United States. Now China spends $200 billion every year importing chips from the United States and in the future this number is expected to grow. Thirdly, there will be more investment into the United States. Right now China holds a lot of capital and as our foreign currency reserve continues to grow, there will be a surge in outbound investment and it means more jobs for the United States. Thirdly, the development of the third industry will expand the import of goods. In this respect, this is the advantage of the United States. In terms of money, insurance, technology, and so on, China's import demand will increase. Fourthly, there will be a rise in our demand for the services that is in the tertiary industry and this is where the United States takes the lead. There will be a lot of demand for the import of financial services and the insurance and some technology patents. So I think there will be a very different picture in terms of our attraction of foreign investment. Now looking at the future, looking into the future of China-U.S. trade investment and the cooperative relationships, there will be a shift. There will be a shift in the pattern of mutual reliance. In the past China excessively relied on the United States but in the future we will rely on each other equally. The second change is in the capital flow. In the past, the majority of the investment is from the United States to China. It is mostly one way. But in the future there will be a two way free flow of capital between these two countries. The third is in the industrial and technological distribution. In the past it is a vertical distribution and in the future it will be a horizontal one. I'll give you some examples like in the high speed rail sector and in the manufacturing of telecommunications equipment. Right now China is equipped to invest in these areas in the United States. Yesterday afternoon it took me almost a whole half day to take the train from New York to Washington DC. When I was approaching to the man's room from my seat the train was moving left to right so I almost fell on my knees. So if we adopt the Chinese high speed rail technology the time will be narrowed from previously four hours to one hour and you will never fall when you walk in the compartment. So there is no reason that China and the United States should not cooperate. Thank you. Okay. Thank you so much for that very comprehensive presentation and an appropriate condemnation of our rail system here in China in the United States. Okay we're going to take questions from the audience now. As always please do identify yourself and your affiliation and just for clarity we'll be webcasting and recording this event so please ask your question in English for our Chinese friends. Let's start here in the blue. Hi I'm Chen Weihua, China Daily. Yeah question you talk about companies of different ownership will be able to play by the same rule because I think you know because SOE they're always intertwined with the rule maker regulators how so you think it's possible to make it fair for you know private companies and SOEs. The other is you know you talk about steel industry which is a very low profit you said a popsicle but I don't think that profit is even there if you counter the environmental cost. You know how this happened I mean how are you going to solve this because are you going to solve this problem by market forces they said or just administration orders. Thank you. Thank you. Thank you. Okay I'll take your first question first. In terms of the state owned enterprises the oversight will be mainly conducted by absorbing private capital into state owned enterprises so as to form a shareholding company with diverse property rights and on that basis shareholders will strictly oversee the performances and operations of the company because shareholders care a lot about the returns of their investment. There will be no effective oversight and regulation upon state owned enterprises. There will be no there will be no effective oversight and regulation upon state owned enterprises if the government is only the share is the only shareholder if we let the private capital and the foreign capital into the game there will be an effective oversight over the state owned enterprises. I'll give you I'll give you one example. Lately we have a we have built a massive petroleum refinery in the major bay in Fujian province it is enormous in size and there are four different ownerships in this company. The first shareholder is the Exxon company in the United States. The second is a Saudi Arabian oil company. The third is a Sino pack and the fourth is a local oil industry in the Fujian province. The Exxon company has technology, the Sato company has resources, and the Sino pack has market. The Fujian company has land and the four companies are united. It is a perfect combination. It provides a good foundation for its future development and competitiveness. This U.S. company has technology, the Saudi Arabian company has the oil, Sino pack has the market and the local company in Fujian has land. So this is a very perfect combination and this forms a solid foundation for its future development and its competitiveness. Thank you. Now digesting the excessive production capacity is the biggest conundrum faced by China right now because it is a common problem in almost all industrial sectors. Firstly we are hoping that through expanding domestic demand we will digest a part of the excessive capacity. Secondly, we are hoping to transfer some of this capacity by outbound investment. Third is by reorganizing the industry so as to digest a part of the capacity. And the last way is that we will ruthlessly take out some of the enterprises to take them out of the game. For lately we have blown up some backward small-scale steel firms in the Hebei province. Thank you. Hi, good afternoon everyone. I am Jennifer, a correspondent for China's Intermedia Group. And my question is going to be as some Western media said China's leaders are doing a lot more talking about reform than real reforming. But we all know they are dangerous and pressing forward too rapidly in economic reform. So what's your take on the speed of economic reform in China? Thank you so much. The deadline for the reform to be implemented is the year 2020. It is set. The deadline for the reform to be implemented is the year 2020. It is set. It is set. There is undoubtedly this is a huge challenge to finish all these over 300 different reforms within seven years. And the Chinese people and overseas media are very concerned about the speed of the reform. However, we have to be confident of the determination and resolution of the new leadership elected through the 18th National Conference of the CPC. Shortly after the leading group of the comprehensively deepening reform was established, there have been two meetings. President Xi Jinping himself presides over the leading group. And there are other three members of the standing committee, which are the vice heads of the leading group. So four of the seven members of the standing committee are involved in this plan. And I am honored to tell you that the office of the leading group was set in the central committee policy planning policy research office where I used to work before I retired. And under this leading group there are six subgroups applied to six different areas of reform. And the majority of the subgroups are overseen by members of the political bureau. And there is another reason for our confidence is that it is that the President Xi Jinping's style is he is very conscientious and he is very resolute. Lately he has been using a very vivid phrase that is when we grab an iron there has to be marks left on the iron and when we stepped on stones there have to be footprints on the stones. And also he talks about a very conscientious implementation of these reforms. It is like pegging a nail into the wall. He also demands that the government officials should devote 90% of their time and energy into implementation. Now the Chinese people feel the same way as the foreign media. The central government has been very clear in terms of their determination and resolution in this new round of reform. While the enterprises and the common people are itching to plunge into this new round of reform but what we are very concerned about is that there probably will be some obstruction from the government departments and local governments. So they probably will not be so anxious to promote reform and probably they will stall the reform. However we must be rest assured that this new round of reform is overseen by the central government and the party central committee who are not only in charge of specific matters but also personnel movement. So if we don't change what we think will change jobs. And from my personal observance I think those who stand against the reforms will step aside and should step aside. And we will select those who are bold to embrace the reforms into the leadership. Stanley Kober. You have mentioned the growing number of international patents. Patents have to be protected by law. The United States complains that China does not protect intellectual property rights sufficiently. And I would invite your reaction to those complaints as your innovation grows. How will your attitude toward the rule of law and intellectual property change? First of all I would like to say that the United States' complaints may be compared with China's companies and China's technology experts. First I must say that probably the complaints from the Chinese enterprises and the inventors of these patents are louder than the complaints of their US counterparts. I personally have been dedicated to the research of China's technology progress and I have to say that China's software industry is very backward even more underdeveloped than that of India. And I think the most important reason is that China's IPR protection and China's protection of the software industry is very weak. As far as I'm concerned the United States patent law was established by President Lincoln and the first certificate was also given by this President. It was only after that that we have witnessed a search in the patent applications and there have been a lot of prestigious patents like the bail, laboratory, etc. And the IPR has entered into a very, very positive cycle. Now China is in the process of improving IPR legislation and in the document adopted by the third plenary session, the knowledge has been put at the same level as technology, labor and capital. These three factors will take part in the distribution on an equal footing. We are most welcome to improving IPR climate in China with the help of our US counterparts and friends. Thank you, Dana Marshall with Transnational Strategy Group. Thank you, Mr. Zheng, for those comments. You emphasized throughout your remarks the importance and the reform program of the last plenum, etc. And you also mentioned kind of in a joking way but since you got a little bit into specific sectors about the high-speed rail, I wonder if you could, if I could focus your attention, maybe get some thoughts from you about what can, what does the reform program, what could it mean for helping to balance the enormous trade deficit the United States still has with China about $300 billion. What sectors do you think could be fruitful ones for the United States to look at? Is there a renewed emphasis that we can expect for an emphasis on consumption rather than exports, something that for the last at least 15 years, administrations of the United States have been discussing with China? How do you see this going? Will we start seeing some real movement because I think it's obvious that these enormous trade deficits are unsustainable? Thank you. He wants to ask a question about China. The huge trade deficit in the United States is now $2,000 billion in dollars. This is of course unsustainable. The U.S. government has been strengthening and expanding its exports and exports over the past 15 years. From my perspective, the enormous trade deficit that we are seeing right now will be gradually reduced and in the near future it won't create such a fuss. I have seen that President Obama has issued a plan to amplify, to multiply U.S. export and 30% of high-tech products which in the past have been restricted to be exported and their limits have been relaxed and I think it will do much help to enlarge the U.S. export to China. Second, President Obama has issued a plan to renew the industry. The U.S. will increase the production of technical equipment and advanced manufacturing products in the country. And the second piece of good news is that also a plan issued by President Obama that is reindustrialization, the United States will devote a lot of its energy into the production of technology. Technological equipment and advanced manufacturing, which means further expansion of U.S. export to China because China needs this kind of very advanced manufacturing products due to our economic upgrading. In particular, the U.S. government has made some policy measures to return foreign investment companies to the United States. In the past, 30% of China's exports to the U.S. were sold to foreign companies in China, and the production of technical equipment and advanced manufacturing products in China were sold to the United States. And I have taken notice that the United States government have been trying to bring back American companies that are operating overseas back into America. And actually in the past, 30% of China's exports to the United States were manufactured by United States companies that have invested, that invested in China in the processing trade. And these products are sold back to the U.S. mainland. And through this new reform in the United States, I think the export from China to the United States will fall. Thirdly, the export from China to the U.S. is a source of labor and resources. And the export from China to the U.S. is a source of labor and resources. And the export from China to the U.S. is a source of labor and resources. Thirdly, a major part of the China's exports to the United States are those labor and resource intensive products. As the labor costs in China are spiking, as we are in great shortage of natural resources, I think that our export in these labor and resource intensive products have reached the ceiling. And in the future, we will transfer these industries into countries, for example, in Southeast Asia. So I think this is also contributing to the fall of the trade deficit. Fourthly, with the increase of both sides of the investment, the export from China to the U.S. will increase in agricultural products and production products. For example, recently, we have received a largest production company in the world in the United States. In the past, this company wanted to sell it to the Chinese market. But now, it has become a full-fledged subsidiary of the Chinese Gemini Company. So it is more convenient for these imports to be exported to China. In addition, China will continue to increase the import of soybeans, materials, and so on. So the US agricultural and production products are very wide in front of China's exports. So these four reasons are added together. In the end, the trade deficit is gradually decreasing. Fourthly, the U.S. exports to China will mainly rise in the agricultural products and the animal husbandry products. Recently, China's meat factory, Shuanghui, has purchased a very famous company in the United States. And in the past, this company encountered a lot of difficulties in exporting pork to the Chinese market. But now this company is a subsidiary of the Chinese company, Shuanghui. So there is greater convenience in pork export. Also, China has huge demand for the import of beans and animal grains, for example. So I'm trying to say that the U.S. agricultural and animal husbandry products will be exported to China in larger shares. And I think in the future, based on the above mentioned four reasons, the trade deficit is expected to be lower. Thank you. Thank you again for this fascinating presentation. David Sedney, a self-employed consultant. Last fall, Larry Summers and Lance Pritchett from Harvard issued a warning about a possible downturn in the Chinese and Indian economies and recommended that Western policymakers make mitigating steps to prepare for such an event. I was wondering in the third plenum, was there any similar attempts to look at some kind of hedging strategies toward on the growth that you predict, such as expanding social safety nets or other measures, in case of such a downturn, or if that's something that you dismiss? Thank you. Expanding the social safety net or something along those lines to take that into account. The question he's asking is about the social security system in China. Because he has some discussions about the social security of China, the social security network may have experienced some downturn. So he wants to ask the three-part meeting, what specific ideas do you have for strengthening and building social security? To improve the social safety, the social security system is one of the most important parts of this reform. We will establish an old-age caring system and a medical care system that will cover 1.3 billion Chinese people as soon as possible. Meanwhile, we will try to integrate the old-age caring system between urban and rural areas and lay out an overall planning of the old-age pension system. We will try to implement these social safety systems on the principle of low-level but extensive coverage so as to match this social safety net with the economic growth currently in China. So in terms of our future endeavor, we will learn from the experiences and to draw on the experience, maybe some lessons of the United States and Europe. One of the reasons why the European countries fell into the debt crisis is because of this large social safety provision. So we have to rein in our own social safety services, safety networks within the limit of our fiscal capabilities. Also, we will learn from the past mistakes or some past mistakes of the United States in terms of our medical care system. Although China's per capita GDP is only $6,000, this number in the United States is $50,000. However, the coverage of the medical care system in China is 98% while it's only a little more than 80% in the United States. Some U.S. friends when they are talking to me say that they are quite embarrassed. So I hope President Obama's medical care program will be a success. My name is Pat Balloy. I'm a Washington trade lawyer. You mentioned that China has about $3.8 trillion worth of foreign currency reserves. I think the United States has run about $3 trillion worth of trade deficits with China since China joined the WTO. So that accounts for a lot of the foreign currency reserves. You indicated that China would do a lot more investing in the United States. I note that a lot of the Chinese investment, probably about 85% of it, is coming from state-owned enterprises controlled by the party. Americans traditionally have not wanted our own government owning major chunks of our economy. For example, you saw the backlash against the government owning part of General Motors in this country. If we are going to be taking that Chinese investment to help us improve our rails as you talked about, does that mean that we have to be more accepting the fact that portions of our economy will be owned by the Chinese government and the Chinese Communist Party? You mentioned that the U.S. has reached $3 trillion worth of trade deficits against China since China joined the WTO. You mentioned that China will increase its investment in the United States. But I know that 80% of China's investment in the United States is coming from state-owned enterprises controlled by the Communist Party. For example, you mentioned that China is investing in the United States. If we accept such a part of the Chinese investment, does that mean that we have to accept the Chinese government and the Communist Party controlling some of the U.S. economy? I think that the part of the reason you have this question is because you do not understand very well about China's capital structure. Private or non-government capital takes up around 70% of our GDP while SOEs take up only 30%. The majority of China's overseas investment is done by private capital. Even in terms of the state-owned enterprises, a majority of SOEs have been listed in foreign stock exchanges, for example, the New York Stock Exchange. 80% to 90% of China's SOEs have their shares held by United States shareholders. So I'm trying to say that probably the United States shareholder, the United States citizens are the shareholders of these state-owned enterprises of China. So if these SOEs invest in the United States, practically it is the United States shareholders investing in their own country. Thank you, Matthew Goodman from here at CSIS. Last September, China opened a pilot free trade zone in Shanghai. Can you explain how this fits into the national plan for reform and specifically which aspects of the Shanghai FTZ reforms are of most interest to the national government in Beijing? He is a researcher from CSIS. Last September, he saw the establishment of a free trade zone in Shanghai. He wanted to ask about the establishment of a free trade zone in Shanghai. What is the relationship between the entire reform and reform plan of the three parties? And what are the specific aspects of the Shanghai FTZ? A very important and very significant reform that has been put forward by the third plenary session in its document is to speed up the building of free trade zones and free trade ports. This is also an experience learned from the United States. The United States is home to over 200 free trade zones or parks and they are all doing very well. Now, one of the most significant hallmarks of the FTZ is that commodities, goods, currency, Now, one of the most significant hallmarks of the FTZ is that commodities, goods, currencies and staff people can flow freely within the free trade zone. Apart from Shanghai free trade zone, we are planning to build free trade ports on the Zhou Shen archipelago. There are over 1,000 small islands in this area taking up to around 1,000 square kilometers of land and we will build all these islands into free trade ports. We will take a three-step strategy to build the Zhou Shen free trade ports. The first step is to build a comprehensive bonding area. The second step is to build FTZ. And thirdly, we will draw on the experiences of Hong Kong and Singapore to build these free trade zones into free trade ports. So as to realize what Mr. Deng Xiaoping has envisioned which is to build a couple of more Hong Kong's. And we advise that the U.S. enterprises should invest in these free trade zones and free trade ports so as to take the lead in the new opportunities presenting ahead. Time for one more question right here. Thank you, Leah from Voice of America. You mentioned one of the reform measures is to have the liberalization of the capital account and also the internationalization of the currency. I'm just wondering if you can talk about a little bit the thinking behind the recent depreciation of the Chinese currency and also what kind of timetable does China have for the liberalization of the capital account and the internationalization of the currency. One of our reform targets is to realize the convertibility of RMB under capital accounts and for RMB to go global. And depreciation recently for RMB to U.S. dollar I think is a very normal but a very temporary phenomenon. It's a temporary volatility. Over the long haul I think the general trend is that the value of RMB to U.S. dollar will rise because in terms of PPP according to calculations this ratio should be 3 RMB to 1 dollar. That is to say the value of RMB to U.S. dollar. In the future, with China's product profit competitiveness rising, as we know the PPP reflects the real purchasing power and as China, as the U.S. dollar, as we know the PPP reflects the real purchasing power and as China's export competitiveness of Chinese goods is expected to rise in the future. It's only a matter of time before the market currency exchange rate matches the real PPP value. There will be a change as I have mentioned in China's export mix. Right now we are focusing on labor and resource intensive products but it will be gradually changed into exporting capital technology and knowledge intensive products. Which means that the currency exchange rate will match the real purchasing power. Right now China is expanding the spectrum of the RMB floating spectrum. So as to match its currency exchange rate to the real purchasing power. In order to prevent hot money influx to China we are actually taking some universal practice in this area like imposing taxation on this hot money influx. So as to steer China away from being the victim of the hot money. For example, if we impose 1% of tax to the money coming in and out of China, the long term, the businesses which are aiming at long term practice operation in China won't care such a small minimum of tax. But those short term hot money will care a lot about the 1% tax. So by so doing we are encouraging long term investment and avoiding short term blow to the Chinese financial stability. But it is only an advice of the think tank, the economists of the think tank. It is not yet being adopted as a national decision. Thank you. Great. Well, thank you very much. Mr. Zheng, I really appreciate your frankness and the comprehensiveness of your comments. Please join me in thanking him and our interpreter. Thank you. Thank you.