Chinese Premier Seeks To Quell Global Markets' China Fears

By Gerry Shih and Pete Sweeney

DALIAN, China/SHANGHAI (Reuters) -- China has fended off the major risks to its financial system while its economic prospects remain positive, Premier Li Keqiang said on Wednesday, as he tried to reassure globalmarkets that Beijing can keep its economy on track and stock markets in check.

"The government took measures to stabilize the market and prevent risks from spreading, we have forced out the possibility of any systemic risks," Li said during a speech at the World Economic Forum, the Swiss corporate think-tank that runs the Davos summit of world leaders.

A run of soft economic data combined with China's surprise devaluation of the yuan and wild swings in Chinese stock prices have rattled markets around the world over the past month.

Li conceded that China's economy was facing downward pressures, but tried to allay concerns that after years of break-neck economic growth it was headed for a hard landing.

"There has been overall stability in China's economic performance in spite of a certain amount of moderation. There's an overall positive trend in spite of difficulties we face," he said, adding that Beijing would "fine tune" its policies to provide more support.

Earlier on Wednesday China's finance ministry said it would accelerate major infrastructure construction projects and reforms to its tax system to help stimulate the economy.

China's government is forecasting its economy will grow by around 7 percent in 2015, a relatively small drop-off in pace from the rate its posted in recent years.

But the surprise move to weaken the yuan in August led to fears Beijing thought theeconomy was slowing more than they had indicated, causing many investors to bet the currency, also known as the renminbi, was set for a series of devaluations.

Li reiterated China's position that the devaluation was a reform aimed at allowing markets a greater role in valuing the currency, but said he expected it to remain stable from here onwards.

"We believe there doesn't exist (a) basis for continuing depreciation for the renminbi because China has large amount of FX reserves," he said.

Data out on Monday showed China's foreign exchange reserves fell by a record amount in August as authorities sought to prevent the currency from sliding further.

China did not want to see a currency war, Li added.

"If a currency war does happen, it would only hurt China," Li said. "The continued devaluation of the yuan is definitely not conducive to the currency becoming internationalized. This is not our policy preference."

Li is the latest Chinese policymaker to come out in recent weeks with words aimed at soothing investors against a backdrop of sharp gyrations in the country's equity markets, which have fallen around to 40 percent since June.

Those efforts appear to have finally brought markets some respite over the past two days.

The CSI300 index of the biggest stocks listed in Shanghai and Shenzhen closed up 1.96 percent on Wednesday, while the Shanghai Composite Index was 2.32 percent higher.

The positive sentiment fed into major markets around the world. Japan's Nikkei index posted its biggest single-day rally since Oct. 30, 2008, while European shares also jumped, with the pan-European FTSEEurofirst 300 Index up more than 2 percent.

Li denied that the slew of policy measures introduced by China in recent weeks to curb speculation in stocks undermined pledges that Beijing would open up its capital markets, saying overseas investors were still welcome in the mainland.

"We will continue to ease market access for private banks and foreign companies to enter the financial sector," he said.

(Writing by Rachel Armstrong; Editing by Mike Collett-White)