MNI EXCLUSIVE: No Rush For Fresh China Stimulus, Advisors Say

     BEIJING(MNI) - China should resist any temptation to launch further

stimulus in the short term even as the latest data seem to indicate increasing

economic headwinds, as additional measures might bring financial risks with only

diminishing returns and the authorities need to keep some policy powder dry in

case a trade war hits activity hard next year, government advisors told MNI.

     Measures including April tax cuts must also be given time to take effect,

said an advisor to the central government, asking to remain anonymous.

     "We should not rush into more stimulus, and policy makers should know that

stimulus will not have the same impact as in the past," the advisor said.

     Economic growth this year should settle in a range of 6.2%-6.5% thanks to

previous policy moves, but a bigger concern is that room for further measures

has been reduced even as the danger of a trade war looms, he said.

     "There is no room for policy tightness, since domestic demand has been

quite weak. But the central bank needs to control the pace of easing, as

excessive loosening will be of no use to the economy now," he noted, adding that

growth in the M2 measure of broad money should be above 8.5% whether the

People's Bank of China pumps in fresh liquidity or not.

     --RISK PREVENTION

     As liquidity conditions improve, more emphasis should be placed on

preventing financial risks, Zhang Junwei, director of a research body attached

to the State Council, told MNI.

     "As the policy stance shifted in previous months, financial regulation has

also been relaxed, which gone significantly against the construction of a legal,

transparent and predictable market environment," Zhang argued, "so the main line

of monetary policy operations in future should be to increase the money supply

but only while preventing and resolving financial risks."

     The first advisor said restrictions on the property market should be

maintained, to avert the risk of inflating a potentially economically

devastating bubble. But, given a weak economy, the authorities' drive to reduce

leverage will proceed only cautiously, he said.

     Neither advisor saw any sector showing signs of being sufficiently robust

to support a strong recovery.

     "The major driver underpinning the economy will be infrastructure spending,

which is government-led, and the trade surplus will remain, as imports should

grow at a slower pace than exports," the first advisor said, "The big headache

is consumption, which is hard to buoy up with official policy, so we have to see

if the tax cut helps."

     For Zhang, the top priority will be supporting employment, something which

policy makers have stressed repeatedly.

     "As long as we stabilise employment and individual income, social sentiment

and consumption should be stable, so the economy and social stability should not

pose a big problem," Zhang said.

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

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