MNI EXCLUSIVE: Choose Growth Over Deleveraging: China Advisors

     BEIJING (MNI) - China's policymakers should bolster the coronavirus-hit

economy by scaling back deleveraging moves, risking higher government borrowing

levels and an increased deficit-to-GDP ratio, policy advisors told MNI.

     "The authorities should look to strike a balance (between economic growth

and risk prevention)," said Zhao Quanhou, director of the Financial Research

Center at the Chinese Academy of Fiscal Sciences, although he felt the current

3% deficit cap would be maintained.

     China's multi-year effort to crack down on ballooning debt has helped

stabilize its debt-to-GDP ratio at around 250% over the last 10 quarters,

according to Pan Gongsheng, deputy-governor at the People's Bank of China.

     However, "given the context of the coronavirus outbreak and the downward

pressure on the economy, it is even more important to maintain economic growth,"

he added.

     Others also saw the need of increased borrowing, with Sheng Songcheng, a

former director of the PBOC's financial survey and statistics department,

advocating an increase in sovereign bond issuance which could also be used to

help under pressure local authorities via transfer payments.

     Growth in total social finance is expected to pick up, both on-and-off book

will remain solid as the government continues its efforts to bolster the

economy, Sheng predicted. However, the current high leverage ratios narrow

policy options when compared to 2003 following the SARS outbreak, he said.

     His views were largely echoed by Zhang Ming, a senior fellow at the

Institute of World Economic and Politics under Chinese Academy of Social

Sciences, said fiscal authorities should accelerate bond issuance to address

slowdown risks, which in turn would pressure local government debt repayments.

     Stimulus to support the virus-hit companies didn't mean the current 3%

deficit limit would be breached, according to Jia Kang, the former head of the

CAFA, as current fiscal support, currently around CNY67 billion, was a tiny

fraction of the government's around CNY20 trillion 2019 overall budget. He also

advocated that the government attempted to pull in private capital to help in

financing infrastructure as government revenue income growth had slowed.

     Jia also saw the economy recovering later this year, provided the virus was

brought under control this month.

     CASS's Zhao was in agreement over the deficit limit, saying the slowdown

has so far mainly impacted the services sector and some of that would be offset

by higher spending on virus-related products.

     Zhao also pointed to China's budget law, which sees between 1% and 3% of

the annual budget set aside for emergency use, which, given current levels,

would give a minimum CNY200 billion to spend -- more than enough for temporary

support for the virus fighting, said Zhao.

     He also played down the option of fresh large-scale fiscal easing, saying

the government had little room for manoeuvre after the 2019 tax cuts of CNY2.36

trillion, although he saw some some targeted and structural moves, including

suspending tax payment for companies impacted by the virus, Zhao said.

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

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