China's Li says basis of recovery 'fragile'

BEIJING (AP) Premier Li Keqiang said Wednesday the basis of China's economic recovery is still fragile and promised to promote growth by opening markets to private competition and improving the investment climate for foreign companies.

China's economic fundamentals are stable but the global economy faces a "complex situation," said Li in a speech at a meeting of the World Economic Forum in the northeastern city of Dalian. His comments were broadcast live on national television.

"The foundation for an economic rebound is still fragile with many uncertainties ahead," Li said.

China's factory output and other activity improved in August after growth dipped to a two-decade low of 7.5 percent in the latest quarter. But analysts warned the rebound is underpinned by government spending and might not last.

Chinese leaders have increased spending on railway construction and cut taxes for small businesses to perk up growth in the world's second-largest economy but have resisted pressure for across-the-board stimulus.

Li announced no new initiatives but affirmed the ruling Communist Party's determination to focus on structural reforms aimed at making the economy more productive and efficient.

"China is now at such a crucial stage that without structural transformation and upgrading we will not be able to sustain economic growth,'" Li said.

Beijing is in the midst of a marathon effort to nurture more self-sustaining growth based on domestic consumption rather than trade and investment.

"We are determined to further stimulate domestic demand and consumer spending. At the same time we want to improve our investment structure and make it more efficient," Li said. He said such changes "will help further energize the Chinese market."

The communist leadership that took power last year has promised an array of reforms, but it has yet to make clear how far it will go in making changes reform advocates say are crucial, such as curbing the dominance of state companies.

"We will improve the investment climate and create an environment in which all players have equal access to factors of production and legal protection," the premier said. "Facts will continue to prove that to come and do business in China is a wise decision for multinationals to expand their business."

Foreign business groups complain Chinese regulators try to shield local companies from competition in violation of the spirit of their market opening pledges. Chinese entrepreneurs complain the communist government favors state companies, which benefit from monopolies and low-cost access to energy, land and bank loans.

Li also tried to quell concern about debts run up by local Chinese governments. That has fueled concern the state-owned banking system might face financial trouble if they default.

An audit last year found local governments ran up debts of 10.7 trillion yuan ($1.6 trillion) over the preceding decade, equal to about one-quarter of China's annual economic output.

"This has become a source of concern," Li said. "We are taking relevant measures to address it in an orderly fashion. Here I can say with certainty that the situation is on the whole safe and manageable."