China will avoid hard landing: PBoC

China should post higher-than-expected growth figures this year, underscoring hopes that the world’s second largest economy will avoid a hard landing, the deputy governor of the People’s Bank of China (PBoC) Yi Gang said on Thursday.

Speaking exclusively to Emerging Markets, Yi shrugged off fears expressed earlier in the year that China’s economy was set to slow sharply. He tipped Chinese gross domestic product (GDP) to be “above 7.5%” in 2013. The World Bank on Monday downgraded its full-year growth forecast for the country to 7.5%, from 8.3%.

Yi’s comments were mirrored by Li Keqiang, who also struck a cheery tone yesterday. Speaking at the East Asia Summit in Brunei, the Chinese premier said economic growth had exceeded 7.5% through the first nine months of the year, suggesting that the government, with the help of a mini-stimulus package unveiled during the summer months, had reversed a first-half slowdown.

Li told the summit that China was providing “stronger momentum of steady growth”, pointing to positive figures from the Purchasing Managers Index.

But the PBoC’s Yi also warned that despite a robust third-quarter performance, both China and China-watchers needed to get used to slower growth out of the People’s Republic. Over the long term, 7% is “a sustainable number” for economic growth, he said, noting that the days of double-digit expansion, last seen in the waning months of 2011, are now a thing of the past. Party leaders in Beijing have long viewed a growth rate of 8% as the minimum level required to stave off social unrest.

China is determined to moderate growth gently – slowing as it looks to “emphasize more the quality of growth,” noted Bert Hofman, the World Bank’s chief East Asia Pacific economist — while boosting private consumption at the expense of exports and capital investment. To that end, Party leaders in Beijing are systematically looking to inject vitality, creativity and competition in to the service sector in general, and financial services in particular.

Recent reform measures include the decision to create a free trade zone in Shanghai designed to act as an onshore financial services hub, drawing in institutional capital and talent from across the world. China’s determination to create an international renminbi also took a step forward on Thursday with the launch of a RMB350 billion (E45 billion) currency swap agreement between the PBoC and the European Central Bank.

Yi said Beijing was committed to pursuing this path of financial reform, as China seeks to transform its large-but-basic economy into one fit for the 21st Century. “Certainly we need more financial reform, but in a stable manner,” said Yi. “Stability is very important for us.”

He also downplayed concerns expressed earlier in the day by China’s premier about the prospect of a looming debt default. Li noted at the Brunei summit that China, which holds 60% of its $3.5 trillion in foreign currency reserves in dollar-denominated assets, was paying “great attention to the US debt ceiling issues.” Yi noted that while China was watching events in Washington “very closely,” he was certain that ultimately cooler heads would prevail.