China Warns of Slow Recovery

Sounding a note of caution about prospects for a rapid economic recovery, Vice President Li Keqiang said Tuesday that China will maintain its relatively loose monetary policy and proactive fiscal policy.

"China's economic recovery does not have a solid foundation, and we should not underestimate the difficulties," Li said. His comments echoed cautious comments made over the weekend by Premier Wen Jiabao, who said China might increase the size of its $585 billion stimulus package if conditions warrant.

On Monday, prominent economist Li Yang, former adviser to the People's Bank of China, the central bank, said he expected the global economy would need at least five years to fully recover from the current recession. Li said that China's economy will not experience a rapid recovery because it will take time for China to find a new engine of growth to replace China's sagging export sector. "China should not count on a turnaround of external demand to bring about its recovery," said Li, director of the finance institute at the Chinese Academy of Social Sciences, according to Chinese press reports. China's exports fell 26.4 percent in May from a year earlier, following a 22.6 percent drop in April, year-on-year.

In May, China's annual industrial output growth figure rose to 8.9 percent, and fixed-asset and bank lending surged, fueling optimism about China's ability to recover quickly from the global recession. However, in recent weeks, Chinese policymakers have become more cautious about their prospects despite such positive signs.

Contact Alan Field at afield@joc.com.