China's Premier Li Keqiang prepared to spend heavily to stimulate economy

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China's political elite sits for exactly one press conference a year. Held inside a cavernous gilded room in the country's Great Hall of the People, it is a tightly controlled affair. A roar of applause greets the arriving premier, journalists are pre-selected to offer questions and state-owned media offer soft-ball queries (this year: "Have you ever bought anything online?").

It is not, in general, a place people turn to for spontaneous insights about China.

Occasionally, though, a flash of something more genuine comes through, and this year it was worry, as Beijing struggles to find a way to right the country's teetering juggernaut. On Sunday, Premier Li Keqiang said he is prepared to break with recent tradition and spend heavily to stimulate the economy. He also outlined further plans to back government out of the affairs of business, and pledged to extend the country's war on corruption to a war on bureaucratic laziness. He did not pledge an easy ride.

"This is not nail clipping. It's like taking a knife to one's own flesh. So pain is only natural," he said.

Deep fractures are forming in the foundations of a Chinese economy that has managed eye-popping growth for nearly four decades. China is no longer a cheap place to make stuff, eclipsed by numerous southeast Asian countries, and even Mexico, on the cost of manufacturing goods. Debt is piling up, house prices are falling and growth is slowing, with China last year posting its narrowest GDP expansion in 24 years.

To move forward, China needs to find new ways of making money, which means remaking a country built on factories that manufacture, and often copy, other people's work.

It is a problem for no one more than China's leadership, which in modern times has drawn its legitimacy from taking credit for year-by-year climb in national wealth. Without change, that growth story will grow harder to maintain.

Though recent years have seen Beijing say GDP growth is less important than quality-of-life issues such as beating smog and cleaning up food, it's clear Beijing is getting more nervous about the economy. Mr. Li, in his annual press conference, said China is willing to break with recent tradition and spend heavily to meet the national target of roughly 7 per cent growth in 2015.

"In the past couple of years we did not resort to massive stimulus measures … and that has made it possible for us to have fairly ample room" to make macro-economic adjustments, he said. Though he later called that scenario "hypothetical," his comments clearly laid the ground for stimulus spending, particularly if China feels it needs to prop up wages or employment levels.

At the same time, Mr. Li sketched elements of a plan to reduce red tape, in hopes it can "encourage mass entrepreneurship and innovation." China, he said, "will step up its efforts to streamline administration and delegate more powers."

Beijing has sought more and smarter businesses since 1978, when it kicked off its reform and opening up. But the notion of Beijing actively seeking to have government "reduce political involvement in business operation" is "an eye-catching" element of the current administration's ambitions, said Huang Weiping, a professor of economics at Renmin University.

Left unmentioned was the ways China under President Xi Jinping is re-inserting government into the social and intellectual sphere of the nation, to a far greater degree than in previous years. Universities have been warned against western thought, artists told to fall in line with government objectives, human rights activists imprisoned and tortured and foreign web pages strictly censored.

And Mr. Li did little to address one of the root problems of China's innovation dilemma, which is an education system that relies heavily on rote learning, and does little to encourage creative thinking. "The Chinese education system really has problems," Mr. Huang said, although he said change is afoot there, too.

But, he added, what China is attempting is a significant change, to an "Industry 4.0" that builds an economy on "intellectualization." Mr. Li may be raising some of these issues now, "but the solution will take the efforts of several generations," Mr. Huang said.

For now, the Chinese premier is placing his hopes on China's roaring Internet businesses, which though still a small part of overall retail rose a remarkable 49.7 per cent in size last year. Online shopping is creating a "tailwind" that "will be able to get China's economy off to a higher level," Mr. Li said.

He also suggested Beijing will expand its corruption crackdown to a campaign against "indolence," a word he used several times. A sweeping Beijing-led anti-graft effort has led to bureaucratic paralysis as government officials decline to act out of fear of being targeted. Part of the problem, too, is that the corrupt system worked, and it's not clear what sort of cleaner mechanisms might replace it. Chinese leadership is less concerned with the latter, however, and more worried that its functionaries do their jobs.

"There is no room for incompetence or indolence," Mr. Li said.

The premier's news conference has itself become a barometer of China's change. This year suggested some slight improvement: while previous outings have been a tightly scripted farce, with individual questions pre-approved and pre-selected, Chinese authorities this year chose journalists based simply on the topics they wished to raise, providing slightly more latitude than before. Questions were accepted from the Financial Times, Bloomberg, the Huffington Post as well as from Japanese and South Korean news outlets.