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Asia Economy Last Updated: Mar 13, 2014 - 10:15 AM


China’s Li Keqiang says future financial defaults ‘unavoidable’
By Finfacts Team
Mar 13, 2014 - 10:12 AM

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Chinese Premier Li Keqiang speaks at a press conference after the closing meeting of the second annual session of China's 12th National People's Congress (NPC) at the Great Hall of the People in Beijing, March 13, 2014. Photo: Xinhua

Chinese Premier Li Keqiang on Thursday at a press conference in Beijing after the closing meeting of the second annual session of China's 12th National People's Congress (NPC), China's parliament, said future defaults of financial products in China are “unavoidable” but the government will take measures to ensure they do not pose a threat to the wider financial system. The premier also said that economic growth would be kept in a reasonable range in 2014.

The premier said China needs to step up supervision of financial risks and he added that "isolated cases" of debt default were difficult to avoid.

"We must strengthen monitoring and deal with the problems in a timely way to make sure there are no systemic or regional risks," he said and added that a national audit of local government debt last year showed that debt risks are controllable overall.

Last week China had its first domestic bond default in modern times when Chaori Solar, a solar panel producer, failed to pay interest on Rmb¥1bn ($162m) worth of bonds it sold two years ago.

Bloomberg News reports that credit-default swaps to protect Chinese sovereign bonds from non-payment for five years climbed to 95.8 basis points or 0.958%  yesterday, the highest since Feb. 5, according to prices from data provider CMA.

“We could see more defaults, not limited to solar companies but also in industries with excess capacity like steel and mining,” Steve Wang, head of fixed-income research in Hong Kong at BOCI Securities Ltd told Bloomberg. "Trust products may also face defaults, he said.

"We are not preoccupied with GDP growth," Li said, adding that jobs and income levels as well as controlling pollution were important goals.

Meanwhile, Xinhua, China's official news agency, reported that China's urban fixed-asset investment grew 17.9% year on year in the first two months of 2014, down from the 21.2% growth registered in the same period of last year, official data showed today.

The growth rate was 1.7%age points lower than the full-year pace of 2013, as China's economy still faces downward pressure, the National Bureau of Statistics (NBS) announced on Thursday.

Urban fixed-asset investment amounted to Rmb¥3.03tn (US$494.13bn) during January and February, with the growth pace in February up 1.33%age points on a month-to-month basis.

China's retail sales grew 11.8% year on year to Rmb¥4.23tn ($690bn) in the first two months of the year, the NBS also said Thursday.

The growth rate was 13.6% in December.

China's industrial added value expanded 8.6% year on year in the first two months of 2014, official figures revealed on Thursday.

On a month-to-month basis, industrial added value in February edged up slightly by 0.61% from the previous month, the NBS added.

China uses industrial added value to measure business activities of designated large enterprises with an annual turnover of at least Rmb¥20m ($3.26m) each.

The statistics showed that the added value of state-owned enterprises saw 4.4% growth in the two months, while joint stock companies ended the period with 9.9% growth.

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