MNI EXCLUSIVE: China Spending Boost Seen Amid Trade War: Off'l

--Fiscal Spending on Investment to Expand in H2: Wang

--Fiscal and Monetary Polices to Be More Accommodative: Wang

     BEIJING (MNI) - China is poised to increase fiscal spending and carry out

further tax cuts to boost the economy and counter the impact of the

unprecedented trade wrangle with the U.S., a research official with the Ministry

of Finance told MNI in an interview.

     "We will enhance our proactive fiscal policies to support infrastructure

investment in the second half of this year," said Wang Zecai, office director of

the Research Institute for Fiscal Science, run by Ministry of Finance. 

     "We will actively cut tax and fees to reduce burdens added to the real

economy by trade tensions and America's detailed tariff list," he said, adding

the two parties will finally go back to the negotiating table to deal with

conflicts, or there will be a "lose-lose" result.

     In the first five months of this year, growth in China's fiscal spending

slowed to 8.14% from 14.68% in the same period last year, while fiscal revenues

maintained a brisk 12.2% gain. This divergence raised concerns that fiscal

policies have shown a contracting bias against its proactive tone.

     Wang argued that the pace of fiscal spending has been controlled to focus

on "structural expenditure," or areas the government see as priorities,

alongside curbing debt risk.

     --FISCAL STIMULUS

     Fiscal policy will be further strengthened and investment will be improved

"significantly" in the second half, Wang said.

     Infrastructure investment from Jan to May this year slowed to 9.4% from

12.4% in Jan-Apr and was only half of the 20.9% rate of gain recorded in the

first five months of last year. That contributed to a slowdown in the overall

fixed-asset investment.

     Wang attributed the slowdown to the stricter regulation on local government

debt raising, along with enforcing the risk-reduction campaign.

     "The authorities have increased scrutiny on financial companies' investment

in state-owned companies and local governments, public-private partnership

projects as well as local government funding vehicles, so the investment slipped

in certain regions," Wang said.

     --DE-RESKING

     The finance ministry will increase the legal debt-raising ability of local

government by lifting the quotas for special bond issuances, while continue to

deal with the "invisible" debt, Wang said, while emphasizing that the central

government won't bail out local authorities.

     Amid the campaign of deleveraging, monetary policy channels for boosting

money supply have been largely constrained, therefore fiscal policy can work as

an effective complement, Wang noted.

     "In H2, fiscal policy will be more proactive and pay more attention to tax

and fees reduction, targeted poverty alleviation and launches of new PPP

projects," Wang said.

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

--MNI Beijing Bureau; +86 (10) 8532-5998; email: sherry.qin@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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