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Li: China economic transformation 'painful and treacherous'

China's Premier Li Keqiang answers a question during a meeting with foreign company executives at the World Economic Forum (WEF) in China's port city Dalian, September 9, 2015.
Jason Lee | Reuters

China's transition from an economy heavily reliant on manufacturing is a "painful and treacherous" one, Premier Li Keqiang admitted, but the country is on track to achieve its targets this year.

He told an audience at the World Economic Forum in Dalian, China, that it was not easy to achieve 7 percent growth domestic product (GDP) growth, as China has targeted in 2015, but that the nation's new growth drivers as it moves from factories to a broader, service-based economy, were rapidly taking shape.

The Chinese economy has only a bright future, he told the audience at what is known as the Summer Davos, adding: "This is not unrealistic optimism."

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Li said China would continue to reform its markets, including by fostering an open and transparent capital market and relaxing restrictions on capital flow into China. More than 10,000 new businesses are registered in China every day, he added, saying that the "sharing economy" was driving new ways to create growth.

As this transition occurs, China's leaders will not be swayed by short-term fluctuations in the economy, Li said, describing the economy as shock-resistant and resilient. His message echoed a statement made by Finance Minister Lou Jiwei last week at the G-20 meeting in Ankara, Turkey. Lou told last weekend's meeting that China was not focused on monthly data.

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The stance is at odds with that of some economists, who say that what data are available from China show that the world's second-largest economy is likely heading for a recession. A recession is usually defined as two consecutive quarters of a contraction in GDP.

Willem Buiter, the influential Citigroup chief economist warned in note on Tuesday: "We believe that there is a high and rising likelihood of a Chinese, EM (emerging market) and global recession scenario playing out."

Buiter, a former member of the Bank of England's interest rate-setting committee, later told CNBC that the official data provided by China was "largely meaningless" and that according to Citi's own models, China's economy grew about 4 percent in 2014, not at 7.3 percent, as the number was revised down to by China earlier this week.

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Data released on Thursday showed that consumer inflation quickened in August, while producer prices slipped deeper into deflation. China's consumer price index (CPI) rose 2 percent in August from a year earlier, against expectations for a 1.8 percent rise from a Reuters poll and following July's 1.6 percent gain.

The producer price index (PPI) fell 5.9 percent, compared with an expected 5.5 percent drop and after a 5.4 percent decline in the previous month. This marks the 42nd consecutive month of declines.

Li-Gang Liu, chief China economist at ANZ said: "As PPI remains negative for over three years, China is still facing the risk of falling into deflation."