May 28 (Bloomberg) -- Chinese Premier Li Keqiang told German business leaders 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 yesterday 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.
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 Inc. in Hong Kong.
Yesterday’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.
China’s benchmark Shanghai Composite Index rose 1.2 percent and Hong Kong’s Hang Seng Index rose 1.1 percent. The yuan retreated from a 19-year high after the central bank cut the reference rate for the first time in three days.
Li said yesterday 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 yesterday. “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 Plc and Markit Economics.
Iron ore tumbled into a bear market earlier this month, joining copper and gold, on concern that slowing growth in China, the world’s biggest buyer, will hurt the demand outlook. BHP Billiton Ltd., the world’s largest mining company, is targeting an 18 percent cut in capital spending in fiscal 2014.
Li said China’s economy is “entering a range of reasonable growth.” The goal for the rest of the decade compares with a 7.5 percent target for this year.
He called China’s 7.7 percent first-quarter expansion “within the reasonable expectations of our macroeconomic controls.”
Around the world today, economic data will include measures of consumer confidence in the U.S. and France. Hungary may lower its benchmark interest rate by a quarter percentage point to a record 4.5 percent, according to a Bloomberg News survey of analysts.
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.
The “ambitious” overhaul packages of his government, which took office in March, will offer “enormous” opportunities for the rest of the world, Li said. He outlined plans for advances in industrialization, urbanization, technological advances and agriculture.
Data earlier this month on fixed-asset investment and factory production missed forecasts and gauges of manufacturing and service industries declined. The economy expanded 7.8 percent in 2012, the slowest pace in 13 years.
Xi told a study session of the Communist Party’s top leadership on May 24 that the country won’t sacrifice the environment to ensure short-term growth.
Xi and Li, who leads China’s State Council, are laying the groundwork to scale back the state’s role, open industry and revamp a household-registration system that’s hampering urbanization.
Li spent the past two days in talks with Merkel’s government, primarily tackling trade issues. Merkel will seek to resolve a European Union trade dispute with China over complaints that the Chinese solar industry is flooding the global market with cheap products.
To contact Bloomberg News staff for this story: Patrick Donahue in Berlin at firstname.lastname@example.org; Zhang Dingmin in Beijing at email@example.com; Scott Lanman in Beijing at firstname.lastname@example.org