Editor's note: The following is a speech made by Premier Li Keqiang at a meeting on functional transformation and institutional reform of local governments on Nov 1.

Not long ago, the Central Committee of the Communist Party of China and the State Council issued the Opinion on Functional Transformation and Institutional Reform of Local Governments. That was yet another major decision made to implement the conclusions of the 18th CPC National Congress and the second plenary session of the 18th CPC Central Committee. It was an important document that would offer guidance and norms for the reform of local governments. Today's meeting is another important meeting following the audio-video conference in May on transforming functions of State Council institutions. Its main task is to further unify thinking and mobilize efforts, make arrangements for functional transformation and institutional reform of local governments and ensure that the decisions made at the central level are well implemented on the ground.

I. We need to effectively write the major articles of government reform by integrating central and local efforts.

The reform of the central government and the local governments can be described as the two parts of an article. We need to take a holistic approach to both parts and ensure that the two go well together to form a good article of government reform. The functional transformation and institutional reform of local governments is an important part of the broader reform and opening-up endeavor of the Party and the country. It is also an important component of our efforts to deepen administrative reform. The main purpose of government reform is to clearly define the relations between government and the market, between government and society and between central and local governments. Reform can also better leverage the roles of market and society, further mobilize the initiative of both central and local governments, make sure that the government fully plays its part, accelerate the development of modern government, promote sustained and sound economic growth and social progress, and meet new expectations and requirements from the public.

1. The reform of local governments is important for sustained growth and for the transformation of the economy. Under current circumstances, if the Chinese economy is to achieve sustained and sound growth over the long run, it has to transform. Looking at the immediate and long-term needs, the Chinese economy has entered a crucial stage of transformation and upgrading.

When the new government took office, it was confronted with a complex economic situation both at home and abroad, with downward pressures on the rise of the Chinese economy. Growth of fiscal revenues slowed down to such a degree that the central fiscal revenue even experienced negative growth at one point. And it was difficult to further increase money supply as there had already been much water in the pool, so to speak. Under such conditions, we decided to focus on transforming government functions and reforming government institutions as the number one task for the new government. We intended to use it to kick off profound and sweeping reform and exercise effective macro control, playing the role of "soldier" and "cannon" when a Chinese chess game begins. Over the past six months and more, we have stayed focused and worked to innovate ways of macro control while maintaining stability. At the same time, we have addressed the issue at its root and made intensive efforts to seek steady progress in transforming government functions, streamlining administration and delegating power. As a matter of fact, the central government has abolished or delegated to lower levels the power of approval over more than 300 items in four batches. We thought that it would take some time for this move to unleash the vitality of the market, but as it has turned out, the strong signal sent by this move has already produced initial, if not immediate, effect in boosting market expectations, galvanizing the market and mobilizing capital from all sources. There has been a burst of enthusiasm for investment and entrepreneurship. The combined effects of accelerated reform and structural readjustments have exceeded people's expectations. Since the beginning of this year, the number of registered enterprises has risen by 25 percent. Among them, the number of registered private and individually owned enterprises has been up by 37 percent, resulting in a growth of around 23 percent in private investment, obviously faster than the growth of government investment. This was also an important factor behind the steady and improved performance of the Chinese economy in the third quarter. Transforming government functions and fully delegating all the power that should be delegated have unlocked market vitality, potential demand and inherent driving force for development. As such, they can give a strong boost to structural readjustment, transformation and upgrading, and advance reform through further opening-up. The primary objective of the establishment of the China (Shanghai) Pilot Free Trade Zone is to promote trade and investment facilitation and enhance efficiency in economic operation through streamlining administration and power delegation. By streamlining administration and delegating power, the government can get things done without extra costs or do more with less. This is what we should fully appreciate.

Over the past 35 years of reform and opening-up, local Party committees and governments at various levels have concentrated on the central task of economic development and made huge contributions to the economic and social development of our country. And this year, various localities have worked really hard and made new headway in economic and social development. Judging from the current situation, we are still under tremendous pressure in stabilizing growth. Fiscal revenues are only slowly growing, while the necessary spending to improve people's well-being cannot be cut and may even have to be increased in some areas. Economic growth achieved through fiscal expenditure and government investment and through more central government deficit and money supply has already come under major constraints. There is only very limited room for policy maneuver in this regard. In the long run, sustained and sound economic development will not be achieved if we continue to follow the old path. Increasing government debts, engaging in mere land transactions, and relying on excessive investment, energy consumption and emissions would also end in overcapacity. So such an approach would not go very far or lead us anywhere. Even if it does produce some short-term effects, they will come at the expense of huge long-term interests. That is why, be it for stabilizing current growth or seeking long-term development, government at all levels needs to rely on reform and innovation to release reform dividends and upgrade the economy. To achieve this, we have to accelerate transformation of government functions and make determined efforts to do away with institutional obstacles arising from excessive approvals, licences, fees and fines. We have to focus our development efforts on giving play to the roles of businesses, the market and non-government actors.

2. The reform of local governments is part and parcel of overall government reform. Local governments directly interact with businesses and the public, and the rights and interests of market players and the public are realized, safeguarded and developed mainly through the local governments. The local governments have a very important role to play in the whole system of government, accounting for over 90 percent of civil servants and around 85 percent of eventual fiscal expenditures in China. It is particularly true for primary-level governments, which belong to the "last one kilometer", as we often say. Whether the reform of government institutions meets its goal as expected and whether government functions are genuinely transformed depends, to a large extent, on local governments. During our recent field trips and seminars in different localities, we have found that many entrepreneurs are looking at the local governments to deliver what the central government has already committed in power delegation. According to them, the effects of streamlining administration and delegating power at the central level will be greatly compromised if the local governments fail to proceed with corresponding reform in a timely fashion. I assured them that the central government has made up its mind, and that so long as the central government can set a good example of effectively doing what is required, the local governments will surely act to meet the requirements of the central government. Under the current circumstances, streamlining administration and delegating power is a very important means to stabilize growth. And to stabilize growth is also for the sake of ensuring employment. With administration streamlined and power delegated, some powers of administrative approval will be cancelled or delegated, which will energize the market and make the businesses and society more creative, thus generating more jobs. If only the head turns and the body stays put, the transformation of government functions and the institutional reform may become a "fake reform" or a "feinted attempt". Since last May, positive results have been achieved in the new round of efforts to streamline administration and delegate power in various localities. Yet, due to restraints of local and sectoral interests, there have been cases where powers have been wrongly or inappropriately delegated, or where only lip service has been made with no real action. In some places, only the complex powers that involve big responsibilities have been delegated, with the "more valuable power" still retained by the government. In others, there have been exaggerations. They easily claim to have delegated approval power for more than 100 items, yet few of them involve any significant power. I want to stress that in the course of reform, the local governments must take a holistic perspective and bear in mind the overall interests. They should not be narrowly preoccupied with their own local interests, still less are they allowed to play tricks or conduct reform as a mere formality. We must ensure that streamlining administration and delegating power must be effectively delivered and serve its purpose.

3. The reform of local governments is important to ensure the effective implementation of central government decisions and mobilize the initiative of various localities. In this round of reform, we must further straighten out the relationship between the central and local governments. We need to ensure the effective implementation of central government decisions. The central government should delegate responsibilities that it is not supposed to undertake in order to focus on matters that fall within its mandate. This will make sure that the decisions of the central government are carried out effectively. At the same time, we should fully mobilize the initiative of local governments. China is a unitary state, which practices the system of unified central leadership, with specific responsibilities distributed across different levels of local government. Major policies adopted by the central government must be strictly implemented by all local governments. However, it is also important to recognize that China is a big country, with varying conditions and uneven development across different localities. We need to bear in mind this reality and leverage the role of local governments in managing economic and social development in a way consistent with their own local conditions. At this stage of economic and social development, we are seeing more demands and more differentiated needs from the people. As a result, the services to be provided by the government are also growing in scope and complexity. In line with their respective conditions on the ground, localities should be more proactive and creative in their work. As the saying goes, "Victory can only be achieved when the army share the same goal throughout the ranks". If we can think and work with one heart and one mind, we will be able to do an even better job.