China's economy will reach official target of 7.5%: Li Keqiang

Two months ago, China had ordered a nationwide assessment of local government liabilities to address concerns about the rising debt from overambitious development projects which threatened the financial stability.

Updated: Sep 11, 2013, 21:45 PM IST

Beijing: Dismissing concerns of hard landing of China's economy due to slowdown, Chinese Premier Li Keqiang on Wednesday reassured the world about the health of China's economy saying the world's second largest economy will reach the official target of 7.5 percent growth this year.

Pointing to the growing signs of stabilisation of China's economy during the past two months he told the opening ceremony of the three-day Summer Davos in the north-eastern port city of Dalian that "such a development momentum of steady progress gives us the confidence that we can meet the economic and social development goals set for the whole year."

Li also tried to defuse concerns about the possibility of a hard landing, saying that "the Chinese economy, which is at a crucial stage of transformation and upgrading, is moving forward steadily and its fundamentals are good."

Regarding the local government debt issue, Li said the Chinese government had taken pertinent measures to regulate and address the problem, and the situation was "on the whole safe and manageable," state-run news agency Xinhua reported.

Two months ago, China had ordered a nationwide assessment of local government liabilities to address concerns about the rising debt from overambitious development projects which threatened the financial stability.

Their work is expected to update China's local government debt figures, which stood at 10.7 trillion yuan (USD 1.75 trillion) by the end of 2010.

Jiang Chao, chief analyst of the debt market with Haitong Securities, estimated that the amount of local government debt was around 15 trillion yuan (about USD 2.4 trillion) which including 9.5 trillion yuan in loans, three trillion yuan in trust funds, two trillion yuan in city investment bonds and 0.65 trillion yuan in local government bonds.

China's economy grew 7.6 percent year on year in the first half of 2013.

Growth fell to 7.5 percent in the second quarter of the year, declining from 7.7 percent in the first quarter and 7.9 percent in the final quarter of last year sparking concerns that for the first time in recent years, the country could miss the official target set at 7.5 percent for this year.

Yesterday Li told delegates of the Summer Davos that?China will strive to generate more jobs in coming years by launching additional reform policies and placing greater emphasis on the service sector's role.

Li stressed that China is able to tackle difficulties and challenges in the course of its economic development, as reform can release the "biggest bonus" to boost the market's vitality.

Instead of taking short-term stimulus measures to bolster the economy, China has focused on reform policies and economic restructuring to boost growth, with these measures having some effect.

Main economic indicators such as the Purchasing Managers' Index have suggested positive signs, state-run China Daily quoted him as saying.

The manufacturing PMI, which reflects factory production activity, rose to 51 in August from 50.3 in July, indicating the fastest expansion of the industry in 16 months.

A reading above 50 indicates activity in the sector is accelerating, while one below 50 points to a slowdown.

Li said China will be able to achieve long-term and healthy growth based on factors like the huge potential for domestic demand in the industrialisation and urbanisation process, reform to eliminate obstacles in the government management system and improvement in growth quality and efficiency based on increasing people's incomes and consumption.

"For the government, the top priority is to ensure sufficient employment," he said.

Li said the government will adopt a long-term, proactive employment policy, accelerate the service industry and promote occupational training to keep the labour market stable.

Commenting on Li’s speech Chris Leung, a senior economist at DBS Bank in Singapore, said China is expected to maintain stable economic growth and achieve the 7.5 percent growth target set for this year, boosted by a series of positive economic figures for trade and inflation.

"The present macroeconomic environment is much different from the late-1990s, when conventional Keynesian and monetarist approaches could be applied aptly," Leung told the Daily.

He believes the policy taken by the Chinese government will neither over-stimulate the economy, nor allow it to sink further.

Investors had feared the economy was slipping into a deeper-than-expected downturn, especially after the money market suffered an unprecedented cash crunch in June.

Zhu Haibin, chief Chinese economist at JPMorgan, said the ongoing economic reform and restructuring, which are the top priority for the new leadership, will benefit China's growth in the long term, although they may slow it in the short term.

"In particular, overcapacity and low investment efficiency in a number of sectors, as well as credit imbalances and rising leverages accumulated in the past four to five years, remain the major challenges to be addressed by the new leadership in the coming years," Zhu said.