No major short-term stimulus planned for China economy

Thursday 10 April 2014 08.48
Any major stimulus plan to fight short-term dips in growth in China have been ruled out
Any major stimulus plan to fight short-term dips in growth in China have been ruled out

Chinese Premier Li Keqiang ruled out major stimulus to fight short-term dips in growth in the world's second-biggest economy, dashing investor hopes that the government would aggressively combat a slowdown in activity.

Li stressed that job creation was the main policy priority.

He told an investment forum on the southern island of Hainan that it did not matter if the growth was a little below the official target of 7.5% for this year.

"We will not take, in response to momentary fluctuations in economic growth, short-term and forceful stimulus measures," Li said.

"We will instead focus more on medium to long-term healthy development," he added.

His comments are among the clearest yet on the government's plans for the economy, which has rattled global investors this year with a surprisingly lacklustre performance.

China has less and less room to rely on policy tools to support the economy for fear of inflating local debt risks, the top economic planning agency said yesterday.

Trade data today showed Chinese exports fell for the second consecutive month in March, the worst showing in over four years, while imports fell by the most in 13 months. 

An almost unabated run of disappointing data this year has fuelled investor speculation the government would loosen fiscal or monetary policy more dramatically to shore up activity.

But authorities so far have resisted broad stimulus measures. Earlier this month, they announced tax breaks for small firms and plans to speed up some infrastructure spending.

Li said that China was positioned to sustain a reasonable level of growth over the long term.

"We have set our annual economic growth target at around 7.5%," he said. "It means there is room for fluctuation. It does not matter if economic growth is a little bit higher than 7.5%, or a little bit lower than that."

Investors have long prepared themselves for growth to slow as China's economy matures, especially as the government tries to steer it away from investment and export-driven growth and towards consumption-led activity.

But the extent of the slowdown this year has still been a shock to some.

Data next week is forecast to show the economy grew an annual 7.3% in the first quarter, the weakest rate since early 2009 in the immediate aftermath of the global financial crisis. 

Economists have repeatedly cut their growth forecasts for 2014, with a Reuters poll showing growth is forecast at 7.4%, just below the government's 7.5% target.