Pressures on China economy under control, says Premier Li

DAVOS — China will avoid a hard landing and is focused on ensuring long-term medium-to-fast growth, Premier Li Keqiang told global leaders in Davos.

While the economy will still face large downward pressures this year, China will not have systemic financial risks and will seek to improve the quality of growth to ensure an appropriate pace of expansion, Mr Li said in a speech at the World Economic Forum in the Swiss ski town.

A few hours earlier, the central bank governor said on a panel that a slower expansion was “good news” if it is more sustainable. The comments and the first reverse-repurchase agreements in a year yesterday follow data this week showing 7.4 per cent economic growth for last year, the slowest in 24 years and the first failure to meet government targets this century.

“For now, the Chinese leaders are trying to hold off broad-based policy easing,” said Mr Liu Li-Gang, head of Greater China economics at Australia and New Zealand Banking Group in Hong Kong. “But if economic indicators in the coming months point to further weakness, China has to act.”

Mr Liu said investors were not fully convinced that the world’s second-largest economy could engineer a smooth “soft-landing” into the “new normal” era of steadier growth. He cited risks in local government debt and shadow banking.

For Mr Li, the risks are under control. “China has much room for urban, suburban and regional development, and domestic demand has huge potential,” he said. “China’s condition will continue to improve and China will bring more opportunities to the world if China’s economy keeps growing at medium-to-fast speed for 10 to 20 years.”

At a panel in Davos on Wednesday, People’s Bank of China (PBOC) governor Zhou Xiaochuan expressed willingness to sacrifice growth for stability. “If China’s economy slows down a bit, but meanwhile is more sustainable for the medium and long term, I think that’s good news,” he said.

Mr Zhou said the PBOC would keep money supply stable and not inject too much liquidity into the economy. The central bank today conducted reverse-repurchase agreements for the first time in a year, helping to meet a seasonal pickup in demand for cash before the Lunar New Year holidays.

Mr Li reiterated that China would pursue a prudent monetary policy and proactive fiscal policy. Leaders are using effective methods to prevent potential risks in finance and the nation’s savings ratio of as high as 50 per cent provides strong support to growth, he said.

Mr Li was the first Chinese Premier to speak at the annual Alps gathering since 2009. China sent its first official delegation there in 1979, when former leader Deng Xiaoping was starting to open the country to the outside world.

In 1992, when relations with Western nations were thawing after the 1989 crackdown on the Tiananmen Square democracy movement, then Premier Li Peng told the Davos audience that China would continue its economic reforms.

In 2009, former Premier Wen Jiabao expressed confidence in maintaining stable growth, even while the US and Europe were roiled by the global financial crisis, and outlined his massive stimulus response.

China’s industrial output and retail sales for last month increased at higher-than-anticipated rates, reflecting the initial effects of pro-investment efforts and the central bank’s first interest-rate cut in two years. BLOOMBERG