October 13, 2015 / 3:28 PM / in 3 years

LMEWEEK-China should be wary of stimulus pleas-HKEx's Li

LONDON, Oct 13 (Reuters) - A stronger, more open China needs structural reform and it should not yield to expectations of fresh stimulus to boost economic growth, Hong Kong Exchanges and Clearing (HKEx) CEO Charles Li told Reuters on Tuesday.

During the course of 2015 as signs of economic slowdown emerged and were reinforced, many have pinned their hopes on China loosening monetary and fiscal policy to boost growth, which is expected to miss the seven percent target this year.

“Some would argue that if China takes the opportunity to undertake reform, change the structure of the economy and not allow themselves to...put the foot on the gas again, every time you have a little bit of a bump in the road...China could be a great place,” Li said.

“People outside China want it to continue to pump money into the system, so we can all feel better from that stimulus. But I think China is probably better off not doing that and so global markets are looking at China with mixed feelings.”

China is the world’s second largest economy and over the past 10 to 15 years it has been a major driver of world growth. Much of that growth was due to large amounts of investment in infrastructure and industrial capacity.

Late in 2008, as the market was starting to talk about economic depression similar to that seen in the 1920s, China announced a four trillion yuan stimulus package, to boost economic activity.

“China has been responsible for half of the global incremental growth for the last eight years, but...by taking on that responsibility China has imported everybody else’s problems,” Li said.

Li added the issue was one of “short-term pain for long-term gain” and that China’s economy was transitioning.

“We are very much used to China being very, very, single mindedly growth driven... That era is clearly behind us.”

On the subject of equity markets, Li said China did the right thing with measures to support the market.

“Stabilisation, rescue became necessary... Obviously in the process there were a lot of measures that were taken that were deemed to be, particularly by international markets, excessive and maybe a little bit draconian,” he said.

China’s government took unprecedented steps to stave off a crash in its stock markets, which have plunged around 25 percent since mid-June on growth jitters.

“I’m not suggesting I agree or disagree, I’m simply suggesting there is a different narrative,” Li said.

“There is a sense of accountability to retail investors when the market is going through that sort of turmoil, when retail investors are not able to access to other risk management tools like futures and options.” (Editing by William Hardy)

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