China Premier Downplays Debt Risk, Hints At Growth Tolerance

Chinese Premier Li Keqiang signalled on Thursday that his government will not ride to the rescue of every troubled investment by saying some loan defaults are “hard to avoid” in what he called a challenging economic environment.

But Li, speaking at a news conference on the final day of China’s yearly parliament, hinted at some tolerance for slower economic expansion this year in order to push reforms aimed at providing longer-term and more sustainable growth.

“We are reluctant to see defaults of financial products, but some cases are hard to avoid,” Li said at the carefully orchestrated conference where media questions were vetted in advance.

“We must enhance oversight and solve problems in a timely way to ensure no systemic and regional risks.”

While acknowledging the economy faced difficulties, Li said those who are overly pessimistic about the country’s prospects have always been wrong in the past, including those who had previously predicted a hard-landing.

“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.

China saw its first default of a domestic bond last week when a loss-making solar equipment firm in Shanghai missed an interest payment of 89 million yuan ($14.6 million).

The default, however, was hailed by experts as a landmark event that will impose more market discipline in the world’s second-largest economy, a break from the past when bonds enjoyed an implicit guarantee because the government would bailout troubled firms to ensure stability.

China’s economy has had a soft start this year, fuelling concerns that the world’s most powerful growth engine is stumbling on the back of slackening growth across many sectors, from exports to consumption, investment and manufacturing.

TOLERANCE ON GROWTH

That has raised worries among some investors that China will miss the government’s economic growth target this year for the first time in years. It is aiming for economic growth of 7.5 percent in 2014.

Li skillfully dodged a question on how far Beijing would let economic growth slip before it steps in with policy measures to support activity. Still, he hinted at tolerance for below-target growth, 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.

Li’s remarks backed those by finance minister Lou Jiwei last week that China can slightly miss the 7.5 percent growth target this year as long as enough jobs are created.

However, Xu Shaoshi, the head of the pro-growth Development and Reform Commission, said on Wednesday that the 7.5 percent target would be the lower limit for the government.

Beijing wants to create 10 million new jobs in 2014 and Li has said that the economy must grow 7.2 percent annually to do that. Some 13 million new jobs were created last year when the economy grew 7.7 percent.

Li said the government will take a differentiated approach in dealing with problems in the property market, rather than using one-size-fits-all policies used by his predecessors that have largely failed to cool down the market.

“We need to apply differentiated property measures in different cities based on different types of demand and local conditions,” Li said.

“We will push forward the construction of affordable housing and make sure these are distributed fairly.”

But on government corruption, Li had an unequivocal answer.

“We will show zero tolerance for corrupt behavior and corrupt officials. No matter who it is, or how senior their position, everyone is equal before the law,” Li said, without mentioning any names.

Speculation has gathered around China’s former domestic security chief Zhou Yongkang, who sources say is at the center of a corruption investigation reaching into the highest echelons of government, though Beijing has yet to formally confirm this.

Source : Reuters