Li Upbeat on China Economy as Lagarde Cites Push to Curb Risk

(Bloomberg) -- Premier Li Keqiang said China’s economy will maintain its momentum and that the leverage ratio has "decreased somewhat" as authorities push on with a drive to reduce financial risk.

Cuts to excess capacity are exceeding expectations, while new growth drivers are replacing old ones at a faster pace, Li said Tuesday in Beijing after round-table talks on trade, finance and economic growth with heads of institutions including the International Monetary Fund.

Li Upbeat on China Economy as Lagarde Cites Push to Curb Risk

IMF Managing Director Christine 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.

China has spent generously to ensure the economy is holding up when the 19th Party Congress convenes next month. The IMF recently raised its estimate of annual growth rates through 2020 and said expansion is expected to remain unchanged this year at 6.7 percent. 

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

Li said the economy will continue its first-half performance, and that the country won’t seek to boost exports by devaluing the yuan. He reiterated that proactive fiscal policy and prudent monetary policy will continue, and said government debt is controllable.

While the IMF raised growth estimates in its latest assessment of the economy, it also warned growth would come at the cost of rising debt that increases medium-term risks to the economy. Household, corporate and government debt will increase to almost 300 percent of gross domestic product by 2022 from 242 percent last year, IMF staff estimated.

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, Organisation 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 percent expansion again in the second quarter. Economists surveyed by Bloomberg project growth will slow to 6.6 percent in the fourth quarter.

Party Congress

Still, growth remains well on track to remain above the target of at least 6.5 percent 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. While President Xi Jinping and Li are likely to stay on the party’s elite Standing Committee, recent retirement conventions suggest the five other members are set to step down.

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.