UPDATE 2-Premier Li says China's economy won't suffer hard landing

Wed Jun 18, 2014 9:21am EDT

* Chinese Premier predicts medium to high growth

* Pledges there'll be no hard landing for economy (Recasts, adds economic context, currency trading deals)

By William James and David Milliken

LONDON, June 18 (Reuters) - Chinese Premier Li Keqiang said on Wednesday that China's economy would not suffer a hard landing and would continue to grow at a medium to high pace in the long term without strong stimulus.

Li made the comments during a speech in London's financial district on the final day of a visit which has yielded trade and investment deals worth 14 billion pounds ($23.76 billion) and strengthened Britain's bid to become the dominant centre for the Western trade in offshore yuan.

Li said he expected China's economy, the world's second-largest behind the United States, to grow at a minimum clip of 7.5 percent, confounding critics, including the International Monetary Fund (IMF), who say the country's rapid growth may eventually falter.

"There have been some discussions saying that the Chinese economy is slowing down, they are worried whether the Chinese economy will head to a hard landing. Here I will be very frank and I will also make this point very solemnly: this will not happen," Li said through a translator.

Li's comments were echoed by People's Bank of China Governor Zhou Xiaochuan. At an event later in London on cooperation in foreign exchange markets, Zhou said he was confident that steady growth and financial stability would ensure market confidence in China's currency, the yuan, officially known as the renminbi (RMB).

Speaking at the same event, British finance minister George Osborne compared the growing importance of China's currency to the emergence of the dollar as the world's reserve currency after World War Two, saying the yuan's growth would be one of the major changes in global finance over coming decades.

China is looking to Britain's financial sector to help promote the use of its currency in international trade. Britain is keen to fend off rivals such as Luxembourg, New York, Paris and Frankfurt, also vying for the offshore yuan business.

"London is the largest offshore RMB market, so the UK should really seize on this momentum to consolidate its position as one of the most important offshore RMB markets outside Asia," Li told policymakers and bankers at the currency-focused event.

SMART, TARGETED STIMULUS

China and Britain announced a deal for London's first clearing bank in renminbi and announced the first direct trading between sterling and renminbi.

China Construction Bank, the country's second-largest lender, will become the first clearing bank in London for renminbi. Asset managers Blackrock and HSBC were granted licences allowing them to invest in Chinese securities in local currency.

Osborne said British companies exporting to China would in future be able to get government credit insurance for contracts denominated in yuan. London should explore deepening ties with the stock exchanges of Hong Kong and Shanghai, he said.

In response to a weak start for the Chinese economy this year, Beijing has announced modest stimulus measures including a relaxation of some banks' reserve requirements, tax breaks and accelerated infrastructure investment.

On Wednesday, Li used his speech to stress that Beijing would not resort to "strong stimulus" to meet its growth targets but would instead rely on smart and targeted measures.

"We have the ability to maintain this targeted approach," Li said in his speech. "We will not resort to strong stimulus, but rather smart and targeted regulation to ensure that major economic indicators, including the 7.5 percent growth target, remain and ensure a sustained rate in the future."

Earlier this month, the IMF recommended that China adopt an economic growth target of about 7 percent for 2015, rather than the government's 7.5 percent target. The IMF also urged the authorities to avoid further stimulus measures and concentrate on curtailing financial risks. ($1 = 0.5893 British Pounds) (Additional reporting by Kylie Maclellan; Editing by Andrew Osborn and Larry King)