MNI EXCLUSIVE: China GDP May Grow Slower Than Hoped - Advisors

--China Advisors See 2020 GDP Growth At Around 2%

--Growth Expectations Have Fallen Since May

     BEIJING(MNI) - China's economy is set to grow by around 2% in 2020,

rebounding from Q1's Covid-19 downturn but disappointing the expectations of

only a month ago as the pandemic spreads around the globe, policy advisors told

MNI, adding that the recovery may need to continue to be supported by monetary

and fiscal stimulus into 2021.

     Q2 growth, to be published next Thursday, is expected to come in between 1

and 2%, said Zhu Baoliang, chief economist of the State Information Center, a

think tank linked to the National Development and Reform Commission, China's top

economic planning body. Growth should register 5% and 6% in Q3 and Q4

respectively, seeing GDP print at about 2% for the year, he said.

     Although outpacing many global economies, such a growth rate would

undershoot the 3-4% advisors told MNI they expected around the time of the

National People's Congress in May. China did not set a formal growth target this

year.

     The lowered outlook reflects the sluggish global recovery and ongoing

concerns over the spread of Covid-19 - which may not be controlled until late

2021, Zhu said, adding that easy monetary policy and proactive fiscal policy

need to remain in place next year to underpin investment and consumer spending.

     Tang Min, a counsellor to the State Council, believes stimulus will

underpin the recovery as lockdowns continue to be eased in the country, with

2020 growth of at least 2-3%. Moving forward, China will look to boost domestic

consumption, reducing its dependency on slowing foreign markets.

     --EASING BACK

     The advisors' comments come as a perceptions spreads among bond market

investors that the PBOC has slightly reduced its easing bias in recent weeks,

with short-term rates moving higher and 10-year CGB yields rising to 3.12%.

Stock market gains and higher inflation have also fueled higher yields.

     Slightly tighter monetary conditions could be feeding into lower GDP

forecasts, according to Chen Daofu, deputy director at the Financial Research

Institute of the Development Research Center of the State Council, who has cut

his expectation for Q4 growth to 6% from 7%.

     Chen still sees solid money supply growth in H2, with M2 rising around 11%,

but inflation should remain below the NPC's 3.5% target.

     Yet advisors told MNI it is too early to say the PBOC has shifted to a

tightening stance. Guan Tao, a former director general of Balance of Payments at

the State Administration of Foreign Exchange, said monetary policy may see

marginal adjustments over the rest of the year, but there will be no retreat

from easing while the economy remains on a recovery path.

     --ECONOMIC INDICATORS

     Infrastructure and property sector investment will be the key growth

drivers, according to Zhu, with overall investment likely to increase by about

2% in 2020, compared with 5.4% last year.

     Infrastructure investment, financed largely by CNY5.35 trillion in

additional government borrowing, will rise around 10% in H2, compared to an

increase of just 3.8% for the whole of 2019, he said. Property investment may

gain 8% y/y, only slightly slower than last year.

     Manufacturing investment growth will likely be zero or even negative, with

consumption and export orders expected to be soft through the rest of the year,

hampered by the slower global economy and the ongoing U.S.-China spat, according

to Chen. Zhu agreed, predicting both imports and exports would contract by 10%

in H2.

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

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