MNI EXCLUSIVE: China To Signal Expansionary Policy In 2020

By Archie Zhang

     BEIJING (MNI) - Policy advisors expect China to signal a more expansionary

fiscal policy later this month to keep economic growth at 6% or more in 2020,

including a boost to infrastructure spending to power a new drive for regional

development, they told MNI.

     "The deficit ratio and quotas for the issuance of government

special-purpose bonds will continue to increase. This means the government will

pursue a more expansionary fiscal policy," said Tang Duoduo, Deputy Director of

Macro-Economy Research at the Chinese Academy of Social Sciences, a research

institute overseen by the State Council.

     While the communique issued by the Central Economic Work Conference will

not provide figures for targets such as GDP growth and the fiscal deficit

ceiling, investors will read between the lines to gauge how much the government

will allow the economy to slow.

     Wording regarding China's real estate sector, which has been tightly

controlled since July of 2019, will be closely scrutinised. Advisors and market

participants told MNI that the government may permit local authorities to

marginally relax control over the sector.

     "It is not a national market, so each place should be flexible with regards

to regulation," said Wang Jun, a researcher with the China Center for

International Economic Exchange, a government-affiliated think-tank.

     --INFRASTRUCTURE DRIVE

     In recent policy announcements, China has signalled a new emphasis on

developing satellite cities close to major metropolitan areas such as Beijing

and Shanghai, according to Lu Ming, a professor with Shanghai Jiaotong

University.

     "It marks a very major policy change," said Lu, noting that officials were

moving away from the previous drive to develop medium-sized and smaller cities

around the country.

     The shift to clusters will require a boost to infrastructure including

subways, railways and high-speed rail links to metropolitan centres, according

to Lu. Increased spending in these areas would be included in a broader

infrastructure drive throughout China's regions, according to advisors.

     China's ruling Communist Party is aiming for gross domestic product in 2020

to be twice its size in 2010. MNI has previously reported that next year's

growth target will be set at or above 6% in order to achieve this aim. GDP grew

by 6.2% from Jan-Sept.

     Yu Yongding, another policy advisor at CASS, told MNI that he stood by an

article he wrote for Caijing this week in which he called for the government to

pursue an expansionary policy to stabilise the economy, even if the additional

fiscal effort by local governments which that entails puts strain on their

finances. Setting a GDP target of less than 6% could undermine confidence and

further sap growth, he argued.

     The communique is set to retain the phrase "prudent monetary policy" to

describe the stance of the People's Bank of China, advisors said, with Zhu Ning,

Deputy Dean of the Shanghai Advanced Institute for Finance, telling MNI that

simply lowering interest rates would not address the root causes of

misallocation of resources that are behind sluggish growth.

     Calls by some advisors for more radical monetary policy including purchases

of local government and corporate bonds will go unheeded, according to a person

familiar with party affairs.

     An article in magazine Qiushi by PBOC Governor Yi Gang, in which he said

that China will not pursue zero interest rate policy or engage in quantitative

easing means, indicates the decision has already been made been made by

leadership, the person said.

     "The party may tweak the policy based on the reaction of officials.

However, it will not change it too much," the person said.

--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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