China Premier Li downplays debt risks

China Premier Li Keqiang signalled that his government will not ride to the rescue of every troubled investment by saying some loan defaults are "hard to avoid" in what he called a challenging economic environment.

Speaking at a news conference, Li acknowledged the economy faced difficulties, but said those who are overly pessimistic about the country's prospects have always been wrong in the past.

"We believe we have the ability, and all the means, to ensure that economic growth will stay within a reasonable range this year," Li said at the carefully orchestrated conference where media questions were vetted in advance.

"We are reluctant to see defaults of financial products, but some cases are hard to avoid," he said.

China saw its first default of a domestic bond last week when a loss-making solar equipment firm in Shanghai missed an interest payment of 89 million yuan.

The default, however, was hailed by experts as a landmark event that will impose more market discipline in the world's second-largest economy, a break from the past when bonds enjoyed an implicit guarantee because the government would bailout troubled firms to ensure stability.

China's economy has had a soft start this year, fuelling concerns that the world's most powerful growth engine is stumbling on the back of slackening growth across many sectors, from exports to consumption, investment and manufacturing.

That has raised worries among some investors that China will miss the government's economic growth target this year for the first time in years. It is aiming for economic growth of 7.5 percent in 2014.

Li skillfully dodged a question on how far Beijing would let economic growth slip before it steps in with policy measures to support activity. Instead, he repeated the government's line that job creation takes precedence over growth.

But on government corruption, Li had an unequivocal answer.

"We will show zero tolerance for corrupt behaviour and corrupt officials. No matter who it is, or how senior their position, everyone is equal before the law," Li said, without mentioning any names.

Speculation has gathered around China's former domestic security chief Zhou Yongkang, who sources say is at the centre of a corruption investigation reaching into the highest echelons of government, though Beijing has yet to formally confirm this.


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