MNI: China Economy Still Driven By Rising Debt: Govt Advisor

     BEIJING (MNI) - China's de-leveraging campaign still faces severe

challenges to implement, as the economy remains driven by the growth of debt, an

economist close to the government said Thursday.

     The leverage ratio will continue to rise as long as the government still

rely on increased debt levels to prop up overall GDP growth, said Li Yang,

chairman of the National Institution for Finance & Development(NIFD) on

Wednesday, during the launch of a new book called China's National Balance Sheet

2018 published by NIFD and the Chinese Academy of Social Sciences(CASS)-run

Institute of Economics.

     e-leveraging will therefore remain a long-term goal, Li emphasized. The key

to lower leverage in the business sector lies in state-owned enterprises(SOEs)

-- and reducing the leverage ratio of SOEs should focus on disposing of zombie

enterprises, Li said.

     --SOCIAL NET WEALTH

     According to the book, by 2016, China's social net wealth has reached

CNY437 trillion, among which CNY424 trillion were domestic non-financial assets

and CNY13 trillion were net foreign assets. This was equivalent to 70.7% of the

U.S. wealth level in the same period, ranking China second across the globe.

     Different from most developed countries whose governments own limited

amount of social net wealth, China's government held 27% of the wealth, with the

remaining 73% owned by residents. This compared with the U.S. and the UK

governments who have negative net assets, while that of the Japan and Germany

are less than 5%, the book said.

     By holding a large amount of net assets, the government has a better stance

in responding to risks. In contrast, this will also reduces the overall

efficiency of the economy. In the long-term, China needs to revitalize the stock

assets and weaken the government's role in direct allocation of resources,

including promoting the reform of SOEs and removing zombie SOEs, according to

the book.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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