China's Li vows to prop up growth; painful reforms likely

Says the govt will deploy 'targeted macroeconomic regulations' if growth drifts towards the limit of its range and cuts into jobs or income

China stands ready to support the economy if growth flags too much, even as the government is determined to push forward with painful efforts to streamline and shrink its own role, Premier Li Keqiang said.

The government will deploy "targeted macroeconomic regulations" if growth drifts toward the limit of its range and cuts into jobs or income, Li told reporters at his annual news conference on Sunday. Stripping the government of some powers may face resistance from vested interests but is crucial, he said.

"This is not nail-clipping - it's wrist slashing," Li told reporters at the Great Hall of the People in Beijing. "It's like taking a knife to one's own flesh."

Li's remarks highlight the challenges his government faces in achieving its growth goals as it carries out reforms aimed at cutting waste and weaning the economy off growth driven by exports and investment. He spoke after the end of the national legislature's annual session, during which lawmakers approved a growth target of about 7 per cent - the lowest in more than 15 years.

The economy, which grew 7.4 per cent last year, faces headwinds such as slowing industrial production, ballooning debt and plans to cut down polluting industries. Bloomberg's gross domestic product tracker, which draws on measures such as electricity production, shows economic growth reached 6.28 per cent in February.

"It's a very thin needle that they are trying to thread," said Andrew Polk, the Conference Board's Beijing-based economist. "The downward pressure on the economy is very strong. All the main drivers of economic growth are decelerating." Li's comments on Sunday echoed ones he made at his annual briefing in 2013, when said China would open the economy to more market forces. At the time, he said doing so would be "very painful and even feel like cutting one's wrist."

Yet much has changed since 2013, when property prices were posting broad advances and gross domestic product would expand at 7.7 per cent for the second straight year. The value of property sales fell 15.8 per cent in the first two months of 2015, while China saw a "relatively big" decline in newly created jobs during that time, according to the human resources ministry.

Expansion of 7 per cent would be the nation's slowest pace since 1990. Li said it won't be easy to reach that target. The challenge of making structural adjustment while maintaining growth is similar to weiqi, a Chinese game where players must plan for the big picture and also get individual moves right, Li said.

Efforts to streamline the government helped boost economic vitality and put China in a stronger position to cope with downward pressure on growth, Li said. China can forestall any systemic or regional financial risks, he said.

The two-hour briefing touched on issues including overseas investment, pollution controls, online shopping - Li said he has bought items over the Internet - and graft. He told reporters corrupt officials would be held accountable for incompetence or inaction. A national anti-corruption campaign has "yielded good results," Li said.

The International Monetary Fund forecasts 6.8 per cent expansion for China's economy this year, while the World Bank estimates growth will be 7.1 per cent. At that pace, China is still set to remain the fastest growing Group of 20 nation.

"They have to accept that the potential growth in China at least in the next five years has slowed significantly," said Liu Li-Gang, an economist at Australia & New Zealand Banking Group Ltd in Hong Kong. "Without policy support, growth could slow to even lower than 7 per cent."