China’s Li: Free Trade Can Solve Many Problems

The world economy is showing positive signs but is still fragile and countries should rely on structural reforms, not quantitative easing, to support growth, Chinese Premier Li Keqiang said on Tuesday.

Li, who met with the heads of global bodies, including International Monetary Fund Managing Director Christine Lagarde and World Bank President Jim Yong Kim in Beijing, said that countries should maintain free trade, Reuters reported.

 “There are increased positive factors in the global economy and signs of warming-up in some aspects. But at the same time, the fragility persists and unstable and uncertain factors are still increasing,” Li told a joint news conference with the heads of international agencies.

“Free trade is a good medicine for resolving problems. Through free trade, we can resolve many problems in the difficult recovery, help companies transform and give consumers more choices,” he said.

Turning to China, Li said the economy would remain steady and continue to improve.

China’s economy grew a stronger-than-expected 6.9% in the first half, defying expectations of a slowdown and putting the country on pace to easily meet its growth target of around 6.5%. “Based on the growth trend in recent months, the economy will continue to maintain the trend seen in the first half,” Li said.

He also addressed China’s high leverage ratio, which has been the focus of a campaign by policymakers to control risks. China’s leverage has stabilized and has even shown some declines, Li said. He also reiterated China’s pledge not to resort to competitive currency devaluation.

At the official local close on Monday, the onshore spot yuan had gained around 6.5% so far this year, about the same percentage loss it suffered in 2016.

Risks Remain

The global economy is recovering, but could easily be derailed by policy uncertainty and the threat of protectionism, IMF Managing Director Christine Lagarde told the same briefing.

Lagarde said the country is making critical efforts to rein in financial risk, and cited an "incredible re-balancing" of the economy from industrial to services and technology. Short-term risks are easing as medium-term risks rise, she said, according to a Bloomberg report.

IMF recently raised its estimate of annual growth rates through 2020 and said expansion is expected to remain unchanged this year at 6.7%.

The meeting, labeled the 1+6 Round Table Dialogue, is the second time Beijing is hosting the heads of six international organizations, following the first gathering last July. Its part of an effort to enhance China’s profile in global economics and finance, which until now hasn’t matched its heft in trade.

The world economy looks better than a year ago, but still has clouds on the horizon, Lagarde said. Threats to the global recovery include protectionism, vulnerability in some economies, and weak productivity growth in many nations, she said.

Protectionist Threat

World Bank President Jim Yong Kim echoed Lagarde, telling reporters at the same briefing that the global recovery remains fragile and that international cooperation is increasingly necessary as the world faces a serious challenge from rising protectionism.

Joining Lagarde and Kim in the meeting with Li were World Trade Organization Director-General Roberto Azevedo, International Labor Organization Director-General Guy Ryder, Organization for Economic Cooperation and Development Secretary-General Angel Gurria and Financial Stability Board Chairman Mark Carney.

China’s economy is forecast to slow from the first half, when it started the year with the first back-to-back quarterly acceleration in seven years then surprised economists by matching that 6.9% expansion again in the second quarter. Economists surveyed by Bloomberg project growth will slow to 6.6% in the fourth quarter.

Still, growth remains well on track to remain above the target of at least 6.5% as Communist Party officials work this year to balance preserving the expansion with curbing risk before a twice-a-decade leadership transition set for Oct. 18.

Before the meeting, Li said in a brief statement to reporters that China will communicate more with the international community as its economy is deeply fused with the world’s, and that it’s willing to hear how international economic organizations see the country’s economy. He added that the government will uphold multilateralism and respect international bodies.