China’s Premier Gives Dire Growth Warning in Unpublished Remarks

Bloomberg News, Bloomberg News

People walk past stores at a shopping area in Beijing, China on Sunday, Sept. 20, 2020. China's economic recovery from Covid-19 accelerated, spurred by a rebound in consumption as virus restrictions eased and larger-than-expected gains in industrial output. , Bloomberg

(Bloomberg) -- Chinese Premier Li Keqiang warned of dire consequences if officials don’t move decisively to prevent the economy from sliding further, saying a contraction in the second quarter must be avoided.

His comments to thousands of local officials at an emergency meeting Wednesday were more frank than the official readout published by state media.

Li told attendees that economic growth risks slipping out of a reasonable range, according to people familiar with the discussions. He said China will pay a huge price with a long road to recovery if the economy can’t keep expanding at a certain rate. That means growth must be positive in the second quarter, he said, according to the people, who declined to be identified in order to discuss official matters.

The remarks reinforce economists’ expectations that the government’s growth target this year of about 5.5% is increasingly out of reach. Beijing is holding steadfast to its Covid Zero strategy of lockdowns and other restrictions, which have brought activity in major hubs like Shanghai to a standstill. Economists surveyed by Bloomberg now expect the economy to grow just 4.5% this year, with some, like Morgan Stanley, downgrading growth to as low as 3.2%.

Li listed a handful of objectives for local officials to focus on this year, including better balancing Covid controls and economic growth. He also urged those authorities to earnestly carry out policies the government has introduced in recent months to ensure economic stability. Growth is the key to solving all problems in the country, such as creating jobs, ensuring people’s livelihood, and containing Covid, he said.

Here are some of the key highlights from Li’s meeting which weren’t reported by the official state media, according to people familiar with the discussions.

Unemployment

Li said the spike in the jobless rate -- it hit 6.1% in April, close to a record -- would bring about grave consequences. While jumps are tolerable in the short term, he warned dangers would emerge should the problem last longer than a quarter. That concern, he said, means that economic growth must be positive in the second quarter, and the unemployment rate must drop.

Local Finances

Li made clear to local authorities that their economies need to recover so they can generate income, adding that all aid the central government can provide has been included in the budget and it only reserved some funds for the handling of extraordinary natural disasters. Local governments need to support the resumption of work as Covid gets under control.

Inflation

Li also stressed the need to ensure grain output does not fall below last year’s levels, as such production is key to keeping inflation in check. He told local governments to make sure summer harvesting and stocking is conducted smoothly -- meaning the harvest can’t stop even if there is a Covid outbreak. Local officials will be held accountable if they can’t stabilize grain production, he warned, adding that it’s their basic responsibility.

Energy

The premier told officials to keep coal mines in operation as long as they meet work safety this summer, adding that energy would be in short supply no matter the state of the economy. Power cuts cannot happen, he added.

Li also highlighted the importance of manufacturing in China, which he said was a mainstay that employs as many as 300 million people, unlike developed countries where service industries make up the lion’s share of the economy. The industrial chain must be protected, he said.