China's premier warns growth target will be tough

Chinese Premier Wen Jiabao reassured the world on Friday that he would deliver on a promise of 8 percent growth in 2009 and might roll out extra stimulus spending if needed to meet the goal.

Wen also said he was closely monitoring the U.S. economy and was concerned about the safety of Chinese assets there, which he called on Washington to protect.

The premier reaffirmed China's commitment to keeping the yuan broadly steady and noted that the currency, far from having depreciated, had gained in value because of a sharp slide in European and Asian currencies.

This had hurt Chinese exporters, said Wen, who was speaking against a background of fears in the currency markets that Swiss moves on Thursday to weaken the franc could trigger a round of competitive devaluations.

In his annual news conference on the sidelines of the National People's Congress, China's ceremonial parliament, Wen said it would be a struggle to prevent growth from slipping below 8 percent.

"I believe that there is indeed some difficulty in reaching this goal. But with effort it is possible," Wen said.

Beijing announced a 4 trillion yuan ($585 billion) plan on November 9 to boost domestic demand and so take up the slack left by a collapse in exports in the wake of the global financial crisis.

But Wen said Beijing had kept some of its powder dry in case the crisis worsened. "We have prepared enough ammunition and we can launch new economic stimulus policies at any time," he said.

The country's years of growth, and tightly managed budget, meant it could now afford to borrow to support the economy.

"We now have more leeway to run a larger fiscal deficit and take on more debt," Wen said. "The most direct, powerful and effective way to deal with the current financial crisis is to increase fiscal spending -- the quicker the better."

JOBLESS WORRIES

Attaining 8 percent growth is the absolute priority of China's ruling Communist Party, which has staked its claim to legitimacy on ensuring ever-rising living standards.

Eight percent is widely thought to be the minimum growth rate needed to hold down the jobless rate at manageable levels -- although the country is already struggling to find jobs for at least 20 million unemployed migrant workers.

Officials fear social unrest could flare if they remain out of work for long, or if many more men and women join their ranks.

"The problem of unemployment is a very serious one," Wen said, adding however that the country was still stable.

"Our government will take this a hundred times more seriously and never become complacent," he said.

SAFE FX RESERVES

Wen said that China had worked to diversify its $2 trillion stockpile of foreign exchange reserves, the world's largest, and that they were "safe overall." 

But the premier had a stark message to the United States, where most of the reserves are invested. China is the biggest holder of U.S. government debt. 

"Of course we are concerned about the security of our assets and, to speak truthfully, I do have some worries," Wen said. 

"I would like, through you, to once again request America to maintain their creditworthiness, keep their promise and guarantee the safety of Chinese assets." 

A collapse in exports and a slump in factory output growth in February surprised investors who had taken recent manufacturing surveys and electricity output data as signs that China's economy, the world's third largest, had already bottomed out. 

But a sustained surge in bank lending since late last year has fueled hope that ample financing is in place for the government's stimulus package to gain traction. 

With 10 months to go in 2009, China is already more than half way toward reaching its goal of at least 5 trillion yuan in new bank lending. 

(Writing by Emma Graham-Harrison and Simon Rabinovitch; Editing by Ken Wills and Dean Yates)