China’s Premier Li Keqiang said the economy is facing downwards pressure but warned that there is little room for stimulus or official investment to take up the slack

TUESDAY, MAY 14, 2013 – 19:26

China’s Li Warns Econ Under Pressure; Little Room For Stimulus

BEIJING (MNI) – China’s Premier Li Keqiang said the economy is facing downwards pressure but warned that there is little room for stimulus or official investment to take up the slack. He said the economic situation remains “complicated” and said market forces will be needed to support growth. Li’s comments were posted in a statement about reforming the structure of the State Council on the government’s main website late Tuesday.

Li Signals Reluctance on Stimulus to Boost China Growth

Chinese Premier Li Keqiang signaled policy makers are reluctant to use stimulus to counter a slowdown in the world’s second-largest economy because the risks outweigh the benefits. “To achieve this year’s targets, the room to rely on stimulus policies or government direct investment is not big — we must rely on market mechanisms,” Li said in a May 13 speech broadcast to officials around the country, according to a transcript published last night on the central government’s website. Relying on government-led investment for growth “is not only difficult to sustain but also creates new problems and risks,” he said.

The comments indicate China may be unlikely to boost government spending or follow central banks across Asia in cutting interest rates as Li tries to pare the state’s role in the economy. Bank of America Corp. and JPMorgan Chase & Co. this week lowered 2013 growth estimates to 7.6 percent after April industrial production and investment trailed forecasts.“The comment suggests that there won’t be any large-scale stimulus, but that doesn’t mean the government won’t try at all to boost growth,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “The growth in the first first four months is too weak for the government to be fully relaxed.”

Last year China cut interest rates twice and accelerated investment approvals in response to slowing growth.

Li’s comments were made at a nationwide teleconference on reducing’s the government’s role in economic development. The government will cut unnecessary checks and approvals to boost private investment, Li said. The country’s growth is under “relatively large” downward pressure, he said.

Lending Spree

Li’s predecessor, Wen Jiabao, rolled out a 4 trillion yuan stimulus ($586 billion at the time) and an unprecedented bank lending spree at the end of 2008 to shield the economy from the global financial crisis, leaving an overhang of debt from loans.

China needs to break an “administrative monopoly” in finance, telecommunications, logistics, health care and education to boost the growth of service industries, Li said in the speech. “The barriers to entry in these areas are high or very high, but the potential of these areas is huge for China,” he said.

Economic growth of 7.7 percent in the first quarter trailed the median forecast of 8 percent in a Bloomberg News survey and fourth-quarter expansion of 7.9 percent. The government in March set a 2013 goal of 7.5 percent, the same target as in 2012.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net