China poses risks to global economic recovery as Li squeezes credit

China is posing risks to global economic growth as Premier Li Keqiang's three-month-old government is squeezing credit.

The People's Bank of China, which controls the world's second-largest economy's banking system, recently refused to inject more cash into the financial system, even as short-term borrowing costs are on the rise.

GDP growth rate fell to 7.8 per cent last year; and most economists fear that the government will not be able to meet its target 7.5 per cent growth this year.

Shane Oliver, head of AMP Capital Investors Ltd's investment strategy, said, "I wasn't too worried up until this week. Things are quite a lot different in China than might have been expected. It does potentially pose risks for global growth."

Oliver is one of the many economists who have lowered their outlook for the Chinese economy.

China has so far been playing a vital role in the global economic recovery. Last year, the Chinese economy accounted for nearly a third of global growth. Countries from Brazil to Australia are increasingly relying on Chinese economy as developed economies are still struggling to recover from the worst global recession since World War II.

Thus, any fall in Chinese economy would also hurt the global economic growth.