China's premier seeks to reassure markets with pledge of support for economy

BEIJING Fri Mar 28, 2014 10:53am IST

China's Premier Li Keqiang gestures as he speaks during a news conference, after the closing ceremony of the Chinese National People's Congress (NPC) at the Great Hall of the People, in Beijing, March 13, 2014. REUTERS/Barry Huang/Files

China's Premier Li Keqiang gestures as he speaks during a news conference, after the closing ceremony of the Chinese National People's Congress (NPC) at the Great Hall of the People, in Beijing, March 13, 2014.

Credit: Reuters/Barry Huang/Files

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BEIJING (Reuters) - China's Premier Li Keqiang sought to reassure jittery global investors that Beijing was ready to support the cooling economy, saying the government had the necessary policies in place and would push ahead with infrastructure investment.

Recent weak economic data and mounting signs of financial risks have dimmed outlook for the world's second-largest economy, sparking talk of imminent government action or even a mini-stimulus plan to shore up growth.

"They don't want investors and businesses to lose confidence. So obviously they want to make it clear they have the ability to step in if necessary. So I think that's probably the main point behind it," said Julian Evans-Pritchard, China economist at Capital Economics in Singapore.

In a speech to a meeting in China's northeast made on Wednesday and reported by the Xinhua news agency early on Friday, Li said government has policies well prepared and would roll out targeted measures step by step to aid the economy.

"We have gathered experience from successfully battling the economic downturn last year and we have policies in store to counter economic volatility for this year," Li said.

"We will launch relevant and forceful measures according to what we have planned in our government work report," he said, referring to his report to China's annual parliament session earlier this month.

Among those measures are speeding up construction of basic infrastructure, including railways, highways and water conservation projects in the central and western provinces, as well as boosting trade and cutting companies' financing costs.

"The overall performance in the economy so far this year is relatively stable and we saw some positive changes, but we cannot neglect the increasing downward pressure and difficulties," he said.

China's exports unexpectedly tumbled last month and other economic data and business sentiment surveys have consistently undershot expectations, suggesting the economy's first quarter performance was the weakest in five years.

SENSE OF UNEASE

Adding to market jitters are signs of financial strain - China's first ever bond default earlier this month, a bankruptcy of a small property developer and a run on small rural banks in one of China's coastal provinces earlier this week.

While isolated and of limited scale, the events feed into growing sense of unease about risks stemming from a combination of a rapid rise in corporate debt and slowing economy.

But Li said the economy was robust enough to fend off potential risks.

"We must also note that China's economy has quite strong tenacity and large wiggle room."

Market reaction to Li's comments was muted, with only Hong Kong shares ticking up.

"The market reaction really hasn't been that great as these comments have been said many times before," said Du Changchun, an analyst at Northeast Securities in Shanghai.

"No matter whether you look at industry performance or economic data, things aren't looking too optimistic. So even if he (Li) says this, unless we see some positive policies the market will not go up too much."

China has set a GDP growth target of around 7.5 percent for 2014, which some economists said could be too ambitious after a likely weak first quarter.

The government itself has said that the target is not fixed and that growth near that level would also be acceptable. However it has also pledged to boost employment, meaning that it must keep growth near the target or risk failing to meet its job promise.

Other analysts said it is not easy for Beijing to turn on the stimulus taps, given an already acute overcapacity problem in some industries and the current government focus on putting structural reforms ahead of growth.

"Those measures Li mentioned were not new. It only means government will start work on projects that have already been approved," said Xiao Bo, economist at Huarong Securities in Beijing.

"It's impossible for the government to unveil stimulus policies as we haven't solved the problems left over from the 4 trillion yuan spending," he said, referring to China's big stimulus package unveiled in late 2008 in response to the global financial crisis.

(Additional reporting by Adam Rose and Xiaoyi Shao in Beijing and Natalie Thomas in Shanghai; Editing by Tomasz Janowski)

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