China can maintain high growth and transition to consumer-led economy, premier Li says

(Reuters) - China's Premier Li Qiang said on Wednesday he was confident the world's No.2 economy could maintain a "relatively rapid" growth rate as it transitions from a manufacturing-led model to a consumer-driven one, a shift analysts say is key to securing its future.

Li's keynote speech, delivered at a World Economic Forum meeting in Tianjin, comes as Chinese officials seek to cushion the economic damage caused by the trade war with the United States through policy support - a particularly daunting challenge for authorities grappling with the pressing need to undertake painful structural reforms.

Most analysts believe China's $19 trillion economy faces two broad paths: it can sustain relatively high, albeit slowing, growth driven by strong exports - a trend likely to fade as trade tensions with the West escalate - or it can endure several years of slower growth while implementing reforms aimed at unlocking longer-term gains through its vast consumer market.

But China's second-ranking official told delegates he was optimistic that Beijing could pull off both.

"We are confident in our ability to maintain a relatively rapid growth rate for China's economy," Li said.

"China's economy showed steady improvement in the second quarter," he added. "Regardless of how the international environment evolves, China's economy has consistently maintained a strong momentum for growth."

Beijing has set an ambitious 2025 growth target of "around 5%", although most analysts expect China will struggle to keep expanding at those rates in the coming years if a lasting truce cannot be secured with Washington.

Oxford Economics expects average annual GDP growth this decade to halve from the 1999-2019 average to 4.5% and slow to 3% in the decade after.

Economists say more policy support for households could ease the transition to consumption-led growth, but the shift remains politically sensitive for the ruling Communist Party, which has long tied its legitimacy to high growth - a key reason why policymakers have delayed seriously pursuing it for over a

decade.

Household consumption has remained at around 39% of GDP over the past two decades, according to analysts at Rhodium Group, a China-focused U.S. think tank, far below averages in OECD economies of 54%.

On Tuesday, China released guidelines aimed at using financial tools to boost consumption, including pledges to support employment and raise household incomes.

The International Monetary Fund last year said deeper reforms are needed to convert China's economy to one led by consumption, including pension reforms, and erecting a social safety net to reduce the need for massive precautionary savings.

"We aim to help China transition from a major manufacturing power to a colossal consumer market," Li said. "This will open up vast and untapped markets for businesses from many countries."

(Reporting by Beijing Newsroom; Writing by Joe Cash; Editing by Shri Navaratnam)

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