Li Says China Needs 7.2% Expansion to Maintain Job Growth

Premier Li Keqiang said China needs 7.2 percent growth to keep unemployment stable and signaled reluctance to widen the budget deficit or ease monetary policy to ensure expansion.

Expansion at that pace would create 10 million jobs a year to maintain the urban registered jobless rate at about 4 percent, Li said in an Oct. 21 speech to the All-China Federation of Trade Unions published yesterday on its website. China’s growth has entered a stage of medium-to-high speed, meaning about 7.5 percent or above 7 percent, Li said.

The comments, consistent with other government statements this year, provide more context for targets in the coming years ahead of the Communist Party’s four-day conclave starting Nov. 9 that will consider reforms aimed at maintaining the pace of growth. Leaders are entering the summit with the economy on an upswing, indexes of manufacturing and services in October show.

“Using the deficit and issuing money to stimulate investment can produce results that year, but corresponding operational room is needed to implement fiscal and monetary policies,” Li said. “More importantly, this kind of short-term stimulus is hard to sustain.”

A July commentary from the official Xinhua News Agency said China needs growth of at least 7.2 percent to keep urban unemployment at about 5 percent, citing “authoritative” estimates. Li told economists that 7 percent is the “bottom line” and the nation can’t allow growth below that, the Beijing News reported that same month.

Extinguish Fire

Speaking about the money-market liquidity crunch in June, Li said in the Oct. 21 speech that the government didn’t panic and stuck to fiscal and monetary policies. Widening the deficit and loosening money supply would have been like “trying to extinguish a fire with wood” and may have resulted in bigger difficulties, he said.

Citing the nation’s outstanding M2 money supply of more than 100 trillion yuan ($16 trillion) as of March, about double gross domestic product, Li said that “there’s a lot of money in the ‘pool’ and issuing more money may lead to inflation.”

A gauge of China’s service industries improved in October, HSBC Holdings Plc and Markit Economics said today, two days after the government said its non-manufacturing Purchasing Managers’ Index rose to the highest level this year.

Separately today, the People’s Bank of China said the nation will maintain a “prudent” monetary policy. Inflation may accelerate in the fourth quarter and China can’t be “blindly optimistic” about prices, the central bank said today in a third-quarter monetary-policy report.

The consumer-price index rose 3.1 percent in September from a year earlier, the fastest pace since February, according to previously reported data.

To contact Bloomberg News staff for this story: Scott Lanman in Beijing at slanman@bloomberg.net; Regina Tan in Beijing at rtan87@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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