Defaults ‘unavoidable:’ China

China’s Premier Li Keqiang said on Thursday that certain individual cases of defaults were ‘hardly avoidable,’ but added that the government does not see the problem of fast-growing debt as a major risk in the year ahead.

Li, speaking to reporters here at his annual press conference, also indicated the government sees its 7.5 per cent GDP target as flexible; the government would give more weight to shifting the growth model by tackling the economy’s debt-addiction and address the pollution problem, rather than just emphasise on high growth.

China’s debt problem has commanded attention this past week as the National People’s Congress (NPC), or Parliament, held its annual session, which concluded on Thursday.

Near defaults of several high-profile trust products backed by major banks, which have struggled to repay clients, have triggered concerns.

Some of the trusts were tied to coal mines and suffered on account of the slowdown in the steel sector. This was followed by a major solar company revealing it its inability to make bond interest payments amounting to around $ 15 million.

The Chinese Premier made it clear that the government was prepared to allow defaults, and would not take drastic stimulus measures that would derail its goal of transforming the economy.

“We don’t want to let today’s stepping stone become tomorrow’s stumbling block,” he said. “How could I possibly want to see such defaults of financial products? But certain individual cases are hardly avoidable.” He said the government was paying “very high attention” to financial and debt risk, starting with conducting a “comprehensive audit” of government debt.

The government had also tightened regulatory measures to deal with risks from the shadow banking sector.

A report last month estimated the debt of Chinese households, banks and government at 226 per cent of GDP last year, up from 160 per cent in 2007, Bloomberg reported.

Li said the debt to GDP ratio was within the “internationally recognised warning line.”

He expected the government to meet its growth target, set again this year at 7.5 per cent, but underlined its ‘flexibility’ on GDP growth.

Creating jobs, he said, was the priority. “We have set the target at about 7.5 per cent. A work report released by Li last week, outlining the government’s policies for the year ahead, pledged to move forward with economic reforms aimed at boosting the role of market and private enterprise, and making growth more sustainable.

The Premier returned to that theme on Thursday, saying the government had abolished Central-level approvals for 416 items.

The streamlining of government had “boosted market dynamism,” he said, with the number of newly registered privately-held businesses growing 30 per cent last year — the highest in ten years.

He also pledged to carry out a “war against smog” and pollution, which he described as “a war against our own inefficient and unsustainable model of growth and way of life,” amid rising public anger in China at the worsening air quality in most of its cities.

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