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No hard landing for China: Li

BEIJING — China will not suffer a hard landing, Premier Li Keqiang said yesterday, as he likened managing slowing growth in the world’s second largest economy to a game of Chinese chess, with Beijing balancing short-term stimulus moves against longer-term reform efforts.

China’s Premier Li Keqiang speaking at the opening ceremony of the World Economic Forum Annual Meeting of the New Champions in China’s port city of Dalian yesterday. Photo: REUTERS

China’s Premier Li Keqiang speaking at the opening ceremony of the World Economic Forum Annual Meeting of the New Champions in China’s port city of Dalian yesterday. Photo: REUTERS

BEIJING — China will not suffer a hard landing, Premier Li Keqiang said yesterday, as he likened managing slowing growth in the world’s second largest economy to a game of Chinese chess, with Beijing balancing short-term stimulus moves against longer-term reform efforts.

“We have plenty of tools at our disposal,” he said in a keynote address at the World Economic Forum in Dalian, China. “You need to be careful with immediate moves you take. That is to say, we need to take targeted measures to resist downward pressure on the economy at the same time we need to build momentum for sustainable and healthy economic growth.

“If the economy shows signs of slipping out of the reasonable range, we have sufficient capability to respond. China will not see a hard landing,” he added.

China’s economy grew 7 per cent in the first half from a year earlier — in line with the official target for this year, but recent downbeat data has raised the risk the government could miss the full-year goal as growth sputters to its slowest in 25 years.

Mr Li is seeking to buttress global confidence in China’s slowing economy after a stock market rout and surprise currency devaluation last month triggered a global sell-off in commodities, equities and emerging market currencies.

His remarks came after People’s Bank of China (PBOC) Governor Zhou Xiaochuan said at the weekend that the rout in Chinese stocks was close to ending, and that state intervention had stopped a free-fall.

“The Premier’s speech is a response from China’s central leadership to ease the growing doubts across the world over the country’s future development and the wisdom of the government’s economic plans,” said Mr Wang Yukai, a professor at the Beijing-based Chinese Academy of Governance. “He is trying to strike a more upbeat note, telling the world that China remains a reassuring force for the international economy, and all countries will benefit from China’s economic reforms eventually.”

Downward pressure on the Chinese economy has increased, with exports falling 5.5 per cent last month from August a year earlier, the official manufacturing gauge falling to a three-year low, and producer prices falling by the most since the global financial crisis.

While Mr Li said China has the tools it needs, the central bank’s buying of yuan and selling of US dollars to defend against a rapid currency depreciation cut foreign exchange reserves by a record US$93.9 billion (S$133 billion) last month.

China faces capital outflow pressures after devaluing the yuan on Aug 11 as investors expect the currency to keep depreciating which, coupled with the depletion of reserves, could complicate efforts to open the economy, said Mr Rajiv Biswas, Asia- Pacific chief economist at IHS Global Insight in Singapore.

“This could constrain significant further capital account liberalisation measures if capital outflows continue in the coming months and force the PBOC to further expend significant forex reserves to prevent further yuan devaluation against the dollar, particularly if the US Federal Reserve hikes policy rates soon,” he said.

Fed policy makers may announce an increase in the benchmark interest rate after their two-day meeting from Sept 16 to 17. The US central bank hasn’t raised rates for more than nine years.

Mr Li said Chinese policy makers have eschewed strong fiscal and monetary stimulus so far, and will not slow the pace of structural reform as they shift the economy’s reliance from manufacturing and exports to services and consumption. Services now account for about half of China’s gross domestic product and consumption about 60 per cent of growth, he said.

He ruled out the use of quantitative easing as a policy to help stimulate growth, saying this alone could not solve structural problems and would lead to negative and spillover effects.

“We will not be swayed by short-term fluctuations in the economy, but we will not take it lightly either. We are taking necessary measures of targeted, discrete and precise macro controls” to mitigate volatility and prevent spillovers, Mr Li said. AGENCIES

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