Don’t worry about mainland slowdown, Premier Li tells Davos

Li Keqiang, China’s premier, speaks during a session on the opening day of the World Economic Forum in Davos, Switzerland

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 in 2015, China won’t have systemic financial risks and will seek to improve the quality of growth to ensure an “appropriate” pace of expansion, Li said Wednesday 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 is “good news” if it’s more sustainable. The comments and the first reverse-repurchase agreements in a year on Thursday follow data this week showing 7.4 economic percent growth for 2014, 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 Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong. “But if economic indicators in the coming months point to further weakness, China has to act.”
Liu said investors aren’t fully convinced that the world’s second-largest economy can engineer a smooth “soft-landing” into the “New Normal” era of steadier growth. He cited risks in local government debt and shadow banking.
Kaisa Group Holdings Ltd., a property developer based in Shenzhen, missed debt payments this month, highlighting stresses in the industry as a housing downturn weighs on growth.
For 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 an earlier panel in Davos on Wednesday, Zhou Xiaochuan, governor of the People’s Bank of China, 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.
Zhou said the PBOC will keep money supply stable and not inject “too much liquidity” into the economy. The central bank yesterday 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.
Li reiterated that China will 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 percent provides “strong support” to growth, he said.
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 supreme leader Deng Xiaoping was starting to open China 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, Wen Jiabao expressed confidence in maintaining stable growth even as the U.S. and Europe were roiled by the global financial crisis and outlined his massive stimulus response.
China’s industrial output and retail sales for December 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