Chinese Premier Li Keqiang has moved to dispel global concerns over the growth slowdown in the world’s second largest economy, the recent turmoil in its stock market as well as his government’s decision to devalue the Yuan.
While responding, last week, to questions raised during a discussion with representatives of Chinese and foreign entrepreneurs at the summer Davos forum in Dalian, Li said the Chinese economy remains stable despite what he described as ‘ups and downs.’
China has a major influence on the global economy and its current slowdown which the Chinese government attributes to ongoing structural reforms has had far reaching effects on economies around the world, including Rwanda, in form of weak global demand for export commodities.
The following are abridged excerpts of the comments made last week by the Chinese premier in response to questions posed by prominent international business leaders.
Premier Li, answering questions from Paul Polman, chief executive officer of United Kingdom based Unilever, regarding sluggish growth in China’s economy and its likely impact:
“Given China’s pivotal role in the global economy, it shouldn’t be a surprise that millions of people around the world may be concerned by what they perceive to be a down-turn in China’s growth and that’s precisely the point of this article, to calm down those fears.
Most of you follow the Chinese economic situation very closely and it can be said that, like elsewhere, it has some ups and downs, but the general trend remains positive.
In the first half of this year, China’s economy increased by 7 per cent which is one of the highest growth rates among the world’s major economies.
Additionally, in the first half of this year, the surveyed urban unemployment rate was about 5.1 per cent and we added over 7 million urban jobs, this shows that China’s economy has been running within a reasonable range.
We believe as long as there’s relatively sufficient employment creation, increased household income which is in step with GDP growth, and a constantly improved environment, such a rate of growth is acceptable.
Overall, there’s stability in China’s economic performance despite moderation in speed of growth, that’s okay because as we press ahead with structural reform to advance structural adjustment, there will be difficulties to overcome.
Given the replacement of development driving forces, it is only natural to see fluctuations in some of the economic indicators on a monthly or quarterly basis; this has happened this year, 2014 and 2013, but the economy is still running within the proper range.
Therefore, we will stick to the basic orientation of our policy, continue with efforts to advance reform and opening-up while at the same time promoting structural adjustments and we are confident to achieve our goals.”
Li, in response to questions by Yorihiko Kojima, Chairman of Mitsubishi Corporation of Japan, relating to China government’s correctional intervention after turbulence experienced two months ago on its stock exchange market:
“Let me reaffirm that China will continue to develop a multi-tiered capital market, stick to the directions of marketisation and legalisation and strive to cultivate an open and transparent capital market with long-term, steady and healthy development.
Again, there have been recent new ups and downs emerging in the international financial market but these fluctuations represent the aftermath of the international financial crisis of 2008.
In June and July, China’s capital market, in particular the stock market, underwent unusual fluctuations as well; measures have been taken by relevant sides to stabilize the market so as to prevent the wide spread of risks.
So far we can say that the systematic risks to the financial market have been forestalled. However, this is not to weaken or replace the functions of the market; it is common international practice and is in line with China’s national conditions.
There are also those who are concerned that China’s government debt may pose serious risks; I think they are worrying too much because the debt rate is relatively low and the government debt risk is controllable.
For example, the debt of the central government is less than 20 percent of GDP, while over 70 percent of local government debt takes the form of investment with expected returns.
China will press ahead with financial system reforms as it’s necessary for maintaining financial stability and opening-up to the outside world.
Recently, in the process of cutting interest rates and the required reserve ratio, we lifted restrictions on the interest rate ceiling for fixed term deposits above one year.
We will also ease market access for private banks, including orderly introduction of foreign investors into the financial sector and their partnerships with Chinese counterparts; certainly, the direction of reform will not be changed, nor will the pace of reform be halted.”
Li, in response to Rich Lesser, Chief executive officer of the Boston Consulting Group from the US regarding the intention of recent devaluation of the RMB by Chinese authorities:
“Since the new governmental leadership assumed office (under President Xi Jinping), the RMB real effective exchange rate has risen by 15 percent.
Due to significant depreciation of several international currencies of many other countries against the US dollar, the international market trend propelled China to adjust the middle rate quotation mechanism of the RMB exchange rate, but just to a minor degree.
In terms of general ledger, the RMB real effective exchange rate of this governmental leadership against the US dollar has witnessed a relatively substantial growth. The RMB exchange rate has maintained basic stability at present after fine-tuning because it doesn’t have a basis of continuous depreciation.
The Chinese economy is also running within the proper range with relatively sufficient foreign exchange reserve and still increasing surplus in trade of goods, all indicating that the RMB exchange rate can keep basic stability at a reasonable and balanced level. Sometimes it can be described by a Chinese buzzword “got shot even no move.”
China does not expect to stimulate export by the RMB depreciation, which is not in conformity with the direction of China’s structural adjustment.
In fact, China is less willing to see the “currency war” happen in the world, because China is a major economy that’s highly integrated into the international market so if the “currency war” happened it will only bring more harm than benefit.
After the fine-tuning of the RMB exchange rate, relevant sectors and enterprises specialised in export have been surveyed and they expressed hope that the RMB exchange rate will maintain basic stability at a reasonable and balanced level, because if the market is expected to have a continuous depreciation, they cannot even receive standing orders, and how can this be beneficial to China’s export?
The internationalisation of the RMB will be chosen by the market but also should be in line with China’s economic development reality.
Besides, internationalisation has a process, and we will promote step by step measures including convertibility of the RMB under capital accounts.
Yet there is one point to be sure that the continuous depreciation of the RMB certainly goes against its internationalisation, which is not the orientation of our policy.
China is willing to join the Special Drawing Rights (SDR), not only for the gradual internationalisation of the RMB, but also to share its due international responsibility as a major developing country. We are not the source of risk for the world economy, but the source of impetus for the world economic growth.