Chinese economy is under pressure but will not slump, says Li

(From Reuters)

China’s economy faces challenges and downward pressures but there is no risk of a hard landing as the government is fully capable of supporting growth, premier Li Keqiang said Thursday.

Premier Li Keqiang speaks at the Annual Meeting of the New Champions of the World Economic Forum in Dalian Thursday

Premier Li Keqiang speaks at the Annual Meeting of the New Champions of the World Economic Forum in Dalian Thursday

As Asia Pacific stock markets took another wobble after data supplied more evidence of slowing growth, Li told the World Economic Forum in Dalian that he was confident that the government would achieve its main economic targets this year.

Li acknowledged that the economy had “come under quite a number of difficulties and downward pressure” while stressing it remained in a “proper range”, a favorite phrase.

But he admitted that “deep-seated problems” were being exposed.

“China is an economy that is closely integrated with the international market,” he said. “Given the weak growth of the global economy, China cannot stay unaffected and the deep-seated problems that have built up over the years are also being exposed.”

He promised more measures to increase domestic consumption as the economy weans itself off export-led growth and also said Beijing would introduce policies to boost imports, he told the meeting in the north-eastern city.

However, he said China would never start a currency war by artificially devaluing the yuan and would instead keep it “basically stable at a reasonable and balanced level”.

His comments were designed to reassure countries which fear that the devaluation of the yuan in August would herald a “race to the bottom” for emerging currencies as they compete for faltering international demand for exports.

New Zealand was the latest to the show the strain when its central bank reduced the benchmark cash rate by 25 basis points to 2.75 percent for the third time in as many policy reviews, citing slowing Chinese growth. The New Zealand dollar has devalued by 25 percent this year.

The Brazilian real has lost even more, down by a third this year, and is likely to fall further after it lost its hard-earned investment credit rating when Standard & Poor’s downgraded it to junk Wednesday night.

The Chinese government is still struggling to stabilize the yuan after its surprise devaluations and to stop a stock market rout that has seen the country’s share indexes plunge 40  percent since mid-June.

Despite a strong rally Wednesday, Asian stocks fell Thursday after lackluster data from China and Japan. In China, factory gate prices fell for the 42nd straight month in the latest sign that deflation could become entrenched in the economy and lead to falling corporate profits, lack of investment and weak consumer spending.

The Shanghai Composite index flagged and was down 1.4 percent on the day. Tokyo’s Nikkei fell 2.5 percent amid fading hopes of action from the Bank of Japan, whileimproved jobs figures were not enough to save the S&P/ASX200 in Australia from the global contagion and it was down 2.42 percent.

China’s producer price index (PPI) fell 5.9 percent in August from the same period last year, the biggest drop since the depths of the global financial crisis in late 2009. Economists had expected a drop of 5.5 percent.

“The change in PPI is very worrying. It could affect corporate profitability, which in turn could affect consumption and the economy,” said Li Huiyong at Shenyin & Wanguo Securities. “We must step up policy support.”

Furthermore, Japan’s key gauge of capital spending unexpectedly fell for a second straight month in July, signalling that the economy is struggling to get back on track after contracting in the second quarter.

“The BOJ may ease policy further in October, but additional easing would not be enough to achieve its inflation target,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.



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