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--Investment Critical To Recovery
--Higher Leverage Ratios Necessary
--First Of 2-Part Interview With Tang Min, Advisor To State Council
     BEIJING (MNI) - China should allow its budget deficit to rise and ease
controls on borrowing helping to unleash an investment-driven effort to
kickstart an economy stalled by the coronavirus outbreak, a counsellor at the
State Council said in an interview with MNI.
     "The government may have not any choice but to act," given the epidemic,
together with the sluggish global economy and trade frictions with the U.S.,
said Tang Min, an economist at the official advisory body inside Premier Li
Keqiang's cabinet.
     The government's large asset holdings, including land, banks and
businesses, make it able to handle higher leverage than is the case in other
countries, he said. The dependence of Chinese companies on bank loans rather
than equity financing also means that leverage ratios tend to be higher than
elsewhere, Tang said on Tuesday.
     "Presently a major issue with private investment is that people lack
confidence," Tang said. Powering up fiscal and monetary policies would help to
remedy this and prompt companies to spend more, he said.
     Yet a new round of investment may not go to traditional infrastructure like
railways and highways, with which China is already well supplied, Tang said.
Instead the government may direct investment to public health and medical care,
whose inadequacies have been exposed in the current spending, as well as
education, culture, agricultural land and irrigation, he said. Investment in
these areas can be undertaken more quickly than in basic infrastructure, with up
to up to 70% of such social development spending potentially feeding into 2020
GDP figures, Tang said.
     High-tech investments could include 5G networks, electric vehicle charging
posts, high-speed internet. These, together with intercity rail connections,
could be joint efforts between the public and private sectors, Tang said.
     --LOW-INCOME SUBSIDIES
     Low-income social groups, both in urban and rural areas, should receive
subsidies to cope with rising food prices in the short term, said Tang, who
works on rural poverty reduction programs.
     "The fiscal deficit needs to increase under these circumstances; it should
not be constrained by 3%," Tang said, referring to the government's deficit
ceiling in terms of its ratio to GDP. The deficit ceiling will be determined by
National People's Congress, which had been scheduled for March but has been
postponed.
     Tang declined to provide any estimate for China's growth rate during 2020,
citing the many uncertainties regarding the outbreak, which is now expanding
faster outside China and could undermine demand for the country's exports.
     Tang cautioned that a return to normal levels of consumption may not take
place until after April, particularly in service sector areas such as
restaurants, cinema and tourism, given that consumers might still be hesitant to
go out. Industrial production may have an easier time recovering, so long as
there is demand, he said.
     While the unemployment rate may rise, and could potentially exceed the
government's previous 5.5% "redline" in one or two quarters, any increase is
likely to be contained given that employment is a policy priority for the
government, Tang said, noting that this was why the authorities are so keen on
assisting small- and medium-sized businesses. China has also had a shortage of
labour in the past few years, Tang added.
     Asked whether the outbreak could weaken China's dominance as a global
manufacturing centre, Tang said the real threat is trade frictions with the U.S.
and anti-globalism.
     "Global production chains are definitely being affected and some may
migrate," he said. But some transfer of manufacturing capacity abroad was
already occurring as China upgrades its economic model, Tang said.
--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com
--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
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