MNI EXCLUSIVE: Advisors Want Virus-Hit China To Boost Deficit

     BEIJING (MNI) - China is likely to expand fiscal stimulus, boosting its

budget deficit to 3% of gross domestic product or higher to support the economy

amid the coronavirus outbreak, two government advisors told MNI, calling for the

government to provide assistance to affected companies.

     Even before the virus outbreak, Liu Xiangdong, deputy director of economic

research at the China Center for International Economic Exchanges, had expected

the deficit target to be set at around 3% of GDP this year, up from 2.8% in

2019, as the authorities aim for growth of around 6%. But the target may need to

be widened further, he said.

     "If the epidemic proves more challenging than expected, the government

could consider lifting the ratio above 3%," said Liu, although he noted that if

the situation improves by month-end, Q1 growth may only come in 0.2-0.4

percentage point lower than it might otherwise have done.

     With many infrastructure works now delayed due to the virus, local

authorities should use the time to consider adding additional projects, Liu

said, adding that issuance of infrastructure-backed special purpose bonds to

fund the projects should continue as planned.

     --INFRASTRUCTURE PROJECTS

     "There could be an adjustment to planned projects," said Liu, "with more

infrastructure added especially in the medical and social welfare sectors."

     The government should continue to cut tax and fees for businesses hard hit

by the epidemic, such as restaurants, hotels, entertainment and tourism, Liu

said.

     "More liquidity, loan extensions, and subsidised loans are required to

safeguard affected companies' cash flow and preserve their capacity to pay

salaries during the virus outbreak," he said.

     Dong Ximiao, special researcher with the National Institution for Finance

and Development, agreed that the government should provide assistance to

companies and boost its budget deficit appropriately.

     "Fiscal policies should be more expansionary," he said.

     Banking supervisors should also adjust nonperforming loan and other

requirements to help lenders as their clients battle the tough conditions, Dong

said.

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

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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