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MNI (London)

China needs to accelerate fiscal stimulus to bolster infrastructure spending and boost growth to 2%-2.5% this year following the coronavirus shock, a senior policy advisor and former member of the People's Bank of China monetary policy committee told MNI.

Domestic consumption remains too soft to function as the motor of growth, said Yu Yongding, speaking as other advisors say Beijing is likely to intensify efforts to build up its local economy in order to make it more sustainable and less dependent on access to foreign markets. In the interview, Yu also called for further reforms to make domestic stock markets more attractive to local companies, noting the growing danger that Chinese firms could find themselves delisted in the U.S.

Investment will remain a mainstay for some time, said Yu, now a senior fellow of the Chinese Academy of Social Sciences, adding that despite the economy's rebound from pandemic lockdown, the priority for households remains to replenish depleted savings, given uncertainties over income and social security provision.

Officials may also need to continue to target growth of about 6% a year after recovery from the Covid-19 shock, even as they strive to improve the quality of economic expansion, he said, pointing to areas such as urban sanitation and sewage works as good targets for government-led expansion.

Without significant fiscal stimulus, central bank monetary support would have only limited effect, the former PBOC advisor said, noting that even targeted loose policy could stimulate unproductive financial speculation, unless it is backed by strong fiscal stimulus.


Yu called for further reforms of domestic capital markets to make better use of China's enormous pool of savings and tempt profitable companies to list in the country. Giants such as Alibaba and Tencent have instead preferred to list elsewhere, he noted. Both trade in Hong Kong, with ADRs in the U.S.

"If a company's major business is in China, there is little reason for it to list in the U.S.," said Yu, pointing to Washington's threats to delist companies which do not meet U.S. accounting standards as another incentive for companies to come home.

So far the U.S. threat has had little effect on Chinese listings in the U.S, IPO data shows. But Yu also noted other dangers for Chinese companies abroad, including the possibility that Sino-U.S. relations might deteriorate to such an extent that Washington seizes China's foreign assets.

Rising uncertainty over China's access to international markets argues in favour of Beijing's new "dual circulation" strategy, which seeks to increase the reliance on the domestic demand while retaining export competitiveness to sustain China's economic growth, Yu said, adding however that change will continue to be gradual. China is unlikely to be able to quickly leave behind the investment-focused model which has seen its economy become the world's second-largest in recent decades, he said.

The new policy focus continues a push to boost local demand which can be traced back to around 2005, he continued. China's trade dependency ratio fell to 31.8% in 2019 from over 60% before 2008, but now this tendency should accelerate, he said.

In 2019, net exports contributed only 1% to GDP growth, compared with 8% in 2006, and this proportion should continue to fall, Yu predicted.

MNI London Bureau | +44 203-865-3829 |
MNI London Bureau | +44 203-865-3829 |

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