Premier warns of severe challenges ahead
Print Edition
CHINA’S economy faces “severe challenges” this year, Premier Li Keqiang said yesterday, his comments coming as weak data fanned speculation the central bank would relax monetary policy to support stuttering growth.
At a news conference at the end of the annual session of the National People’s Congress, China’s top legislature, Li hinted that Beijing would tolerate slower economic expansion this year while pushing through reforms aimed at providing longer-term and more sustainable growth.
Growth in investment, retail sales and factory output have all slumped to multi-year lows, suggesting a marked slowdown in the first two months of the year, according to data released by the National Bureau of Statistics shortly after Li’s comments.
The premier spent most time discussing the economy but also touched on other topics, including friction in relations with Washington, corruption, pollution, and the disappearance of a Malaysia Airlines aircraft.
While acknowledging economic difficulties ahead, Li said Beijing would not let growth slip too far. The government has targeted a rise in GDP of 7.5 percent this year after 2013’s actual growth of 7.7 percent.
“We believe we have the ability, and all the means, to ensure that economic growth will stay within a reasonable range this year,” he said.
He also signaled allowing further debt defaults after Shanghai Chaori Solar Energy Science and Technology Co Ltd failed last Friday to pay an interest payment on its five-year bonds.
The first default on a domestic bond was hailed as a landmark that will impose more market discipline, a break from the past when bonds enjoyed an implicit guarantee because the government would bail out troubled firms.
Growth in Chinese corporate debt has been unprecedented. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 percent to 4.74 trillion yuan (US$777.3 billion) between December 2008 and September 2013.
“We are reluctant to see defaults of financial products, but some cases are hard to avoid,” Li said. “We must enhance oversight and solve problems in a timely way to ensure no systemic and regional risks.”
Li said financial and fiscal reforms are among top priorities this year, reinforcing market expectation of changes to liberalize bank deposit rates and efforts to rein in local government debt.
China’s leaders unveiled plans last year for sweeping reforms aimed at transforming a reliance on investment and exports, which have fueled double-digit growth for three decades, to one that leans more on services and consumption. It included allowing market forces to play a bigger part in the economy.
Signs of an economic slowdown have raised worries among some investors that China will miss the 7.5 percent growth target. But Li hinted at tolerance for growth below target, as long as enough new jobs are created.
“The GDP growth target is around 7.5 percent. ‘Around’ means there is some flexibility and we have some tolerance,” he said, adding that the lower limit on growth must ensure job creation.
The government wants to create 10 million new jobs this year, and Li has said the economy must grow 7.2 percent annually to do that. Some 13 million new jobs were created last year.
On the property market, Li said the government would refrain from using the one-size-fits-all policies that have largely failed to calm real estate inflation.
“We need to apply differentiated property measures in different cities based on different types of demand and local conditions,” he said.
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