World Economy

No Hard Landing for China

No Hard Landing for ChinaNo Hard Landing for China

China's embattled prime minister on Thursday sought to soothe febrile financial markets, which have been beset by near panic over the prospects for the world's second largest economy.

“China is not a source of risk, but a source of growth for the world economy” insisted Li Keqiang, speaking in Dalian at the opening of the World Economic Forum, in his first public comments since the Chinese stock market's 8.5% “Black Monday” plunge last month. “Despite some moderation in speed the performance of the Chinese economy is stable and it is moving in a positive direction”, IOL reported.

Li reiterated Beijing's 2015 GDP growth target of “around 7%” and asserted that the Chinese state still has the necessary tool to prevent a collapse in domestic GDP growth.

“If there are signs that the economy is sliding out of the proper range we have the ability to deal with the situation” Li said. “China will not have a hard landing.”

Li is reported to have been personally behind Beijing's heavy handed attempts to stem the steady declines in the value of Chinese stocks in recent weeks. Various measures from ordering state-owned brokerages to buy shares, to hounding so-called “rumor mongers”, have failed to put a floor under prices. The Shanghai composite is down around 38% over the past three months.

Stock markets across the western world have also seen big declines on the back of fears that the Chinese economy, which is still the largest single national contributor to global demand, is decelerating more rapidly than previously believed.

No Currency War

Last month, Beijing allowed the renminbi to fall by 4% against the dollar in two days, which was interpreted by many as an attempt to boost China's flagging exports. The unexpected move set off a wave of stock selling across western bourses as traders took it as a sign that the economic situation in China was worse than the official figures were indicating.

But in his speech yesterday Li denied that China was devaluing the yuan to gain a trade advantage. “China will never resort to a currency war”, he said. That verdict won some support from other participants in the Dalian forum Thursday. “It (the devaluation) was a relatively small adjustment downwards, but the difference is that we are in an environment where people ask what it means,” said Lord Turner, the former chair of the UK's Financial Services Authority regulator.

Minutes from the Bank of England's latest interest rate-setting meeting Thursday suggested that the Monetary Policy Committee is holding its nerve in the face of the stock market turbulence emanating from China.

Deflation Risks

Consumer prices in China hit the highest level this year while deflation risks in industrial production loomed larger, signaling a need for continued easing policies, Xinhua reported.

The National Bureau of Statistics announced on Thursday that China's consumer price index, the main gauge of inflation, climbed to 2% in August, the highest level in 2015.

The figure was up from a predicted 1.9% and the 1.6% recorded in July. On a monthly basis, the CPI rose 0.5% in August, according to the NBS.

NBS statistician Yu Qiumei attributed the pick-up to higher food prices, including vegetables and pork. Non-food inflation remained subdued at 1.1% in August, unchanged from July.

Zhu Baoliang, an economist with the State Information Center, a government think tank, said favorable factors remain to keep inflation under control, including an expanding service industry and a government determined to deliver on its reform promises.

He predicted the inflation rate in the second half of the year will not exceed 2%. The Chinese government aims to keep consumer inflation at around 3% for 2015.