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Li Keqiang mollifies global fears over Chinese economic slowdown

China's Premier Li Keqiang gestures as he answers a question during a meeting with foreign company executives at the World Economic Forum (WEF) in China's port city Dalian, September 9, 2015. Photo: Reuters 

China has fended off the major risks to its financial system while its economic prospects remain positive, Premier Li Keqiang said on Wednesday, as he tried to reassure global markets that Beijing can keep its economy on track and stock markets in check.

"The government took measures to stabilize the market and prevent risks from spreading, we have forced out the possibility of any systemic risks," Li said at a meeting of the World Economic Forum in the eastern Chinese city of Dalian.

A run of soft economic data combined with China's surprise devaluation of the yuan and wild swings in Chinese stock prices have rattled markets around the world over the past month.

Conceding that China's economy was facing downward pressures after years of break-neck economic growth, Li said that Beijing will stick to plans for market-opening reforms despite recent "fluctuations" in economic performance.

"There has been overall stability in China's economic performance in spite of a certain amount of moderation. There's an overall positive trend in spite of difficulties we face," the premier said, adding that Beijing would "fine tune" its policies to provide more support.

Chinese leaders are in the midst of an unusually high-level effort to calm global financial markets after a collapse in Chinese stock prices and abrupt downturns in manufacturing and exports.

The central bank governor, finance minister and securities regulatory agency issued similar statements last weekend that stock market turmoil was ending and the economy was stable.

Earlier on Wednesday China's finance ministry said that it will accelerate major infrastructure construction projects and reforms to its tax system to help stimulate the economy.

"The underlying trend of the economy is still moving in a positive direction," said Li, the country's No. 2 leader and its top economic official. Pointing to data showing more than 7 million urban jobs were created in the first half of the year, he said, "all this shows the Chinese economy has been running within the proper range."

Li announced no new initiatives but touched on a wide range of issues that are sensitive for foreign investors in a clear attempt to assure them business conditions would remain stable.

China's economy has cooled steadily over the past two years as Chinese leaders try to steer it to more self-sustaining growth based on domestic consumption instead of exports and investment. But foreign concern about a possible "hard landing," with slumping growth fueling political tensions, spiked up after trade and factory activity fell in July and August.

China's government is forecasting its economy will grow by around 7 percent in 2015, a relatively small drop-off in pace from the rate its posted in recent years.

Li said that current growth, forecast by the government at about 7 percent for the full year, is acceptable so long as it generates enough jobs.

No global currency war

The premier also played down concerns about a global currency war and Beijing's ability to maintain a stable yuan, saying that Beijing has no further plans to allow its yuan to decline in value following a surprise August 11 devaluation.

"We don't hope to depreciate the yuan to stimulate exports. This is not in line with the direction of structural adjustment. And we do not want to see a global currency war because it would only do harm to China," Li said in response to a question from Boston Consulting Group President Rich Lesser on the yuan's devaluation and the outlook for its globalization.

The People's Bank of China surprised the world on August 11 with a nearly 2 percent devaluation of the yuan against the US dollar and the start of a three-day weakening of the currency. Those moves caused tension in global markets.

The Chinese government said that the change was aimed at making the yuan's state-set exchange rate more market-oriented, but it prompted concern that Beijing might depress it further to give a price advantage to exporters that are struggling with weak global demand. That sparked fears of a global "currency war" if other governments responded by pushing down their own exchange rates.

Li said that exporters feared that they would lose long-term orders if the market expected continued falls in the yuan. He also said that ongoing depreciation was not a policy option for the currency's internationalization.

The premier said "continuous depreciation" would hurt Chinese exporters by causing foreign customers to postpone orders. He said that exporters told him they want stable exchange rates.

"We don't wish to boost our exports by devaluing the Chinese currency," said Li.

"Still less do we want to see a 'currency war'," he said.

He said that China's monetary authorities adjusted the yuan's parity mechanism in response to global market conditions brought on by decisions by many countries to let their currencies fall against the US dollar.

He added that the yuan had appreciated 15 percent in real terms since the start of his administration.

Open more areas to foreign firms

The premier also tried to reassure investors that recent economic turmoil would not disrupt progress on carrying out pledges to open more of the state-dominated economy to private and foreign companies.

Reform advocates complain that Beijing is moving too slowly in carrying out a long-range development blueprint issued in 2013 that calls for giving market forces a central economic role for the first time.

In a report this week, the European Union Chamber of Commerce in China said that regulators are backtracking in some areas, including with the introduction of proposed security legislation that would limit access to foreign computer security products.

"The direction is for China to open wider to receive more foreign direct investment and to open more areas to foreign investors," said Li.

Li affirmed that Beijing plans to let its currency trade freely, though he gave no time frame. A growing amount of Chinese trade is settled in yuan but Beijing still determines the exchange rate and restricts the flow of money into and out of the mainland.

"It needs to be a process determined by the market," Li said. "It will take some time, in keeping with the actual situation of China's economic conditions. But we will press ahead with steps to achieve full convertibility under the current and capital accounts."
 


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