China's economy will not suffer a hard landing: Li

Allaying global concerns over the possibility of China's struggling economy heading for a "hard landing", Premier Li Keqiang said today that the world's second largest economy has the ability to withstand financial risks.

"China's economy will not suffer a hard landing and there are more hopes than difficulties for the world's second largest economy," Chinese Premier Li Keqiang said in his annual press conference here today answering questions over the growing domestic and global concerns over China's economic slowdown.

Hard landing refers to the state of economy rapidly shifting from growth to slow-growth to flat as it approaches a recession.
 

"As long as we stay on the course of reform and opening up, China's economy will not suffer a hard landing," Li, 60, who is second in the leadership hierarchy to President Xi Jinping said in his press conference telecast live all over the country.

On the sliding path since 2011 ending about the three decades of double digit growth, China's GDP last year slipped to 6.9 per cent with forecasts by IMF and World Bank that the slowdown will continue in the next two years.

Early this month Li in his work report of legislature the National People's Congress (NPC) proposed to cut down the GDP target for the next five year 6.5 to seven per cent.

About the status of the economy, Li said global economic growth is sluggish and China has been affected by the weak performance.

China is also going through a transition and some deep-seated problems, which have built up over the years, have become more acute, he admitted.

"All these have added to downward pressure on China's economic growth," Li said.

He also played down concerns over financial risks faced by China, spiralling debts of the local government as well as falling profits of the Chinese banks.

Local government debts along was stated to be over USD 1.20 trillion.

Li said China is in a good position to defuse financial risks adding that the non-performing loan ratios of some financial institutions increased in China because of the difficulties in some enterprises and some sectors.

But capital adequacy ratio of China's commercial banks exceeded 13 per cent, below the international warning line, and banks' provision coverage ratio was above 180 per cent, higher than the level of 150 per cent set by the government, Li said.

The fairly high corporate debt ratio is no new problem in the country, Li said, as Chinese companies still raise capital mostly indirectly.

But "we also have other market-based tools at our disposal to help bring down corporate debt ratio," Li said.

"We have a good reserve of policy instruments in our tool kit" to deal with the slowdown, Li said.
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China has a high savings rate, and the government is determined to press ahead with building a multi-layered capital market, he said.

"We can also use such market-oriented format as debt equity swap to help bring down corporate leverage ratio," the premier said.

Due to multiple factors, there were some unusual fluctuations on the stock market last year, Li said.

"Relevant government departments took coordinated measures to stabilise the market and prevent systemic financial risks. Our measures achieved the desired purpose," he said.

China needs to reform its financial regulation system, including having whole coverage of financial regulation, as the country sees an increase of financial innovation products, Li said, noting that there should be enhanced and authoritative coordination in the regulation.

But "it will be a process to put in place a full-fledged financial regulatory regime," he said.

Asked about protests by thousands of workers in coal mines in some of the provinces over concerns of job losses, Li said China will balance reform and development well and avoid massive layoffs while cutting overcapacity.

The government said over 1.8 million workers wouldbe retrenched in the two sectors while reports quoting officials five to six million people may loose their jobs due to slowdown.

About the reforms to halt the economic slowdown, he said,"I believe that reform will further stimulate market vitality and public creativity.

"The supply-side structural reforms China has been pursuing, including streamlining administration, delegating powers of the government and cutting corporate taxes, will unleash more market vitality," he said.

"At the same time, new forces that drive China's development are fast taking the shape in a way that has gone beyond our expectations," Li said.

In the past few years, despite slower growth, China has achieved fairly sufficient employment. Last year alone, it generated another over 13 million urban jobs.

In the first two months of 2016, our service sector expanded 8.1 per cent, including the services for the high-tech and R&D.

In the meantime, China is upgrading traditional growth drivers, where there is still much the government can do, because China remains at a stage of industrialisation and urbanisation he said.

Propelled by the twin engines -- the new growth drivers and upgraded traditional ones -- China's economy will be able to get beyond difficulties and rise to a more promising level, Li said.

Last year, global economic growth slid to a six-year low.

But still China managed to meet its economic development target of around 7 per cent, he said.

Instead of resorting to massive stimulus measures, the country has chosen a much harder but sustainable path of development -- pursuing structural reforms.