Dragon to limp on debt burden

Beijing : Chinese Premier Li Keqiang warned on Thursday that the economy faces “severe challenges” in 2014 as weak data fanned speculation the central bank would relax monetary policy to support stuttering growth. Mr Li, speaking at a news conference on the final day of China’s yearly parliament, hinted Beijing would tolerate slower economic expansion this year while it pushes through reforms aimed at providing longer term and more sustainable growth.

Data released shortly after his comments suggested that tolerance may face an early test. Growth in investment, retail sales and factory output all slumped to multi year lows, suggesting a marked slowdown in the first two months of the year, according to data released by the National Bureau of Statistics. “A storm is coming,” said Gao Yuan, an analyst at Haitong Securities in Shanghai, while Hao Zhou, the China economist for ANZ said “policy easing should be imminent.”

But Mr Sheng Laiyun, a spokesman for the statistical bureau, said China’s economic fundamentals remain sound despite experiencing some short term pains from structural adjustments. “The economy is likely to maintain steady and healthy growth in the future,” he was quoted by state radio as saying. At the carefully orchestrated briefing where questions had to be vetted in advance, Mr Li suggested Beijing would not let growth slip too far. The government has targeted a rise of GDP in 2014 of 7.5 per cent after actual growth last year of 7.7 per cent.

“We believe we have the ability, and all the means, to ensure that economic growth will stay within a reasonable range this year,” he said. He also signaled the government will allow further debt defaults after Shanghai Chaori Solar Energy Science and Technology Co Ltd failed last on Friday to pay an interest on its five year bonds. The first default on a domestic bond was hailed by experts as a landmark that will impose more market discipline, a break from the past when bonds enjoyed an implicit guarantee because the government would bail out troubled firms to ensure stability.

Growth in Chinese corporate debt has been unprecedented. A Thomson Reuters analysis of 945 listed medium and large non financial firms showed total debt soared by more than 260 per cent to $777.3 billion between December 2008 and September 2013.