China seeks to reassure the world: 'We will not have a hard landing'

Premier insists nation is still growing strongly and denies claims Beijing is engaging in currency war

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The Independent Online

China’s embattled prime minister has 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 per cent “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”.

Mr Li reiterated Beijing’s 2015 GDP growth target of “around 7 per cent” 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” Mr Li said. “China will not have a hard landing”.

Mr 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 “rumour mongers”, have failed to put a floor under prices. The Shanghai composite is down around 38 per cent 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.

Last month Beijing allowed the Renminbi to fall by 4 per cent 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, Mr 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. “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.

Lord Turner suggested that the devaluation was more likely to be part of Chinese moves to liberalise its capital account in order to help get the yuan included in the International Monetary Fund’s special basket of global reserve currencies.

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


The MPC held interest rates unchanged at 0.5 per cent, with lone hawk, Ian McCafferty, maintaining his call for a first rate hike since 2007. But the minutes played down the turmoil in markets following Beijing’s devaluation.

They stated: “While these developments have the potential to add to the global headwinds to UK growth and inflation, they must be weighed against the prospects for a continued healthy domestic expansion. Domestic momentum is being underpinned by robust real income growth, supportive credit conditions, and elevated business and consumer confidence.”

Crumbling BRICs: Brazil’s credit downgraded to junk

China is not the only member of the ‘BRIC’ club of emerging nations in difficulties. The credit rating agency S&P slashed Brazil’s debt rating to junk status, as the South American nation battles against recession and deteriorating public finances. S&P said its decision was based on the mounting political problems – including corruption claims – hindering a fiscal and economic turnaround. It added that these had weighed on the government’s “ability and willingness” to submit a 2016 budget in line with President Dilma Rousseff’s pledges after she won re-election last year. The agency believes Brazil’s economy will shrink 2.5 per cent this year and not return to growth until 2017.

The other members of the BRIC club include China, Russia and India. Russia is also in the grip of a severe recession. Only India is showing resilience with its economy growing at an annual pace of 7.25 per cent in the second quarter of the year.