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China premier warns on economic slowdown

Beijing, March 13, 2014

Chinese Premier Li Keqiang warned on Thursday that the economy faces "severe challenges" in 2014 - comments that came as weak data fanned speculation the central bank would relax monetary policy to support stuttering growth.

Li, speaking at a news conference on the final day of China's yearly parliament, hinted Beijing would tolerate slower economic expansion this year while it pushes through reforms aimed at providing longer-term and more sustainable growth.

Data released shortly after his comments suggested that tolerance may face an early test. Growth in investment, retail sales and factory output all slumped to multi-year lows, suggesting a marked slowdown in the first two months of the year.

"A storm is coming," said Gao Yuan, an analyst at Haitong Securities in Shanghai, while Hao Zhou, the China economist for ANZ said "policy easing should be imminent."

At the carefully orchestrated briefing where questions had to be vetted in advance, Li spent most time discussing the economy. But he also touched upon other topics, including friction in relations with Washington, corruption, pollution, and the disappearance of a Malaysia Airlines aircraft.

While acknowledging the economy faced difficulties, Li suggested Beijing would not let growth slip too far. The government has targetted a rise of GDP in 2014 of 7.5 percent after actual growth last year 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 signalled the government will allow 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 by experts as a landmark that will impose more market discipline, a break from the past when bonds enjoyed an implicit guarantee because the government would bailout troubled firms to ensure stability.

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 ($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 expectations that long-awaited changes to liberalise bank deposit rates and efforts rein in local government debt could be in the pipeline. - Reuters
 




Tags: China | Beijing | Li |

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