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updated: 5/28/2013 10:02 AM

Li tells Germany China targets 7 percent growth for decade

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Bloomberg

BERLIN -- Chinese Premier Li Keqiang told German business leaders this week that his country is confronted by "huge challenges" as it seeks 7 percent annual growth this decade, down from more than 10 percent in the previous 10 years.

China needs growth of about 7 percent to double per capita gross domestic product by 2020 from the level in 2010, Li said Monday in Berlin after meeting with Chancellor Angela Merkel during his first trip abroad as premier. Expansion is cooling from the pace that propelled the nation to become the world's second-biggest economy.

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Li, who succeeded Wen Jiabao as premier in March, is signaling the limits of leaders' tolerance for slower growth as Europe's debt crisis curbs shipments abroad, manufacturing weakens and a government anti-extravagance campaign restrains restaurant and retail sales. The comments came days after President Xi Jinping said China won't sacrifice the environment to ensure short-term expansion and policy makers outlined plans for a bigger role for the private sector.

"I don't think it's a change of policy stance, but I do feel that in the past several months we've started to hear more and more signals from the central government that they want to tolerate lower growth," said Zhang Zhiwei, chief China economist at Nomura Holdings in Hong Kong.

Monday's comments at a Germany-China business forum compare with Li's remarks at a March 17 press conference that China must average 7.5 percent growth through 2020. State-media transcripts that day said Li gave a 7 percent figure.

Other recent documents from Chinese leaders have referred to 7 percent average growth through 2020, and Li's comments lend support to that goal as "there might be some confusion" over the March remarks, Zhang said.

Moody's Investors Service may "get worried" if China's economic growth slows rapidly, Tom Byrne, the head of the sovereign risk group in Asia at the ratings service, said at a forum in Beijing today. Moody's China rating is currently Aa3.

"If we thought the economy was going to slow very rapidly from 7.5 percent to 7 percent to 6.5 percent, maybe we wouldn't wait until it comes to 6 percent to see whether there are pressures on our rating," Byrne said.

Li said that the Chinese government will move forward with market-driven reforms to generate stable growth after the economy unexpectedly slowed in the first quarter. Industrialization and urbanization give "huge" potential for expansion during the rest of the decade, Li said.

"For a very big economy, this is not easy," Li said. "But we have the conditions."

China's manufacturing is contracting in May for the first time in seven months, to 49.6, according to a purchasing managers' index from HSBC Holdings and Markit Economics.

Li visited Germany seeking to ease trade tensions with Europe and establish stronger links. The new premier said open markets require China to engage more with other nations, pledging to grant foreign investors equal treatment and protect intellectual property.

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