China’s Li Sees Increasing Uncertainties After Brexit Vote

Updated on
  • Nations should improve policy coordination after Brexit: Li
  • China "well-prepared" to use tools to meet challenges: Li

China’s Premier Li Keqiang said global uncertainties have increased after the U.K.’s vote to leave the European Union and said his nation has ample tools to meet challenges facing the economy.

The impact on global financial markets is already evident and measures are needed to ensure stability in the international economy, Li said on Monday at the World Economic Forum in Tianjin. On China, he reiterated that the nation will be able to maintain medium- to high-speed growth rates and has room to apply proactive fiscal measures.

Li Keqiang in Tianjin on June 27.
Li Keqiang in Tianjin on June 27.
Photographer: Qilai Shen/Bloomberg

"China hopes to see a united, steady European Union as well as a stable and prosperous United Kingdom," Li said, adding that nations should improve policy coordination. "No country can depart from the world economy to promote development of itself. So we need to join forces."

The U.K. voted to quit the European Union last week, sending shock waves through world markets. Responding to a surge in the dollar as investors rush to minimize risk, the fixing rate of the Chinese yuan tumbled Monday by the most since August, when the country overhauled the way the exchange rate is decided.

That impact was more muted on China’s stock market on Monday, with the Shanghai Composite Index 1.5 percent higher at the close.

"Policy makers are likely to closely watch the country’s market condition and exports performance in the coming weeks before introducing any additional easing measures," Morgan Stanley analysts including Robin Xing wrote in a note. The vote’s biggest impact on China "would likely be through the impact on the euro area, which is China’s second largest export destination," they wrote.

China Vulnerable

Slowing growth and capital outflows make the nation vulnerable to the effects of the Brexit vote, according to Bloomberg Intelligence economists Fielding Chen and Tom Orlik. If Brexit does trigger a significant adverse impact on European demand and global investor sentiment, China could be among the Asian economies least well-placed to respond, they say.

Li said China’s $10 trillion-plus economy is operating in a stable way and the employment market remains healthy as 5.77 million new jobs were created in the first five months of the year and the survey-based jobless rate stayed at about 5 percent in May.

The government is capable of keeping the yuan at a reasonable, balanced level, and there’s no basis for long-term devaluation, he said, reiterating his past comments and those of other policy makers.

"We have policy instruments to help us meet all potential challenges," Li said, noting that China’s central government debt ratio remains low. "There’s still room for the central government to do more to implement proactive fiscal policy."

On boosting foreign and private investment, Li said that China will further open up the services and manufacturing sectors and create a transparent and predictable market for foreign businesses. "As long as the businesses are registered in China, no matter they are Chinese or foreign, no matter they are join ventures or a solely foreign funded ones, we are going to see them as equal."

Li said it’s important to cut overcapacity in steel, coal and other industries that have surplus production. Such companies must take measures to assure that workers can be re-employed and local governments should help take care of those staff, he said.

"China’s economy has become so big," Li said, adding that short-term volatility can’t be avoided and the high-speed growth boosted by old engines isn’t sustainable. "Medium to high speed is already good enough to produce jobs and increase wages."

— With assistance by Xiaoqing Pi

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