MNI: China Should Control Fiscal Spending: Fmr Minister Lou

     BEIJING (MNI) - China should be conservative in its management of fiscal

spending and shun large infrastructure investments just for the sake of

stimulating growth, a former Minister of Finance said Sunday. 

     Both central and local governments are overburdened with debt and

increasing spending on social securities will see them take on more, said Lou

Jiwei, now chairman of the National Council for Social Security Fund. Boosting

leverage only adds to future risks as the country grapples with structural

reform, he said at a Beijing forum.

     Beijing's campaign to root out financial risks has choked business

activities while the trade war with the U.S. clouds exports and as China

contends with its weakest growth since the 2008 global financial crisis, some

policymakers and advisers have called for both increased fiscal spending and tax

cuts. Lou voiced opposition to such moves.

     Local governments are already weighed under by heavy debt, while revenues

have shrunk, Lou said. 

     Meanwhile, central government is tied up by the huge gap in social security

funding, Lou said. Subsidies to social security funds were CNY1.2 trillion last

year, and it is expected to rise further as the population ages.

     --VAT CUT CAUTION

     Lou also cautioned against cuts to the widely-discussed value-added taxes.

The country should focus on cutting corporate and personal income taxes because

the VAT is absorbed by consumers, Lou said. 

     Overall, Lou suggested the economy needs to contend with a prolonged period

of slower growth, and a trade war with the U.S. has delayed a rebound. However,

even if growth drops to 6%, it can still be considered as medium-to-fast growth

and be sufficient.

     The globe's two biggest economies will find a way out of the trade war in a

responsible manner, Lou said. The U.S may not impose a further round of tariffs

on $250 billion imported Chinese goods as it would likely receive a bigger share

of the negative economic impact, Lou predicted. 

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

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