MNI INTERVIEW: China 2018 GDP May Beat Target: Govt Advisor

--Stimulus Policies To Underpin China's Economic Growth

By Iris Ouyang

     BEIJING (MNI) - China may report higher-than-expected GDP this year as the

government's stimulus policies will buttress the domestic economy, which is

slowing amid a trade spat with the U.S., an advisor to China's economic planning

department said in an interview with MNI.

     "The 'around 6.5%' GDP target will certainly be met, and the whole-year

growth will be higher than 6.5%," Xu Hongcai, deputy chief economist at the

China Center for International Economic Exchanges, an advising body run by the

National Development and Reform Commission, told MNI.

     --GDP ABOVE TARGET

     According to Xu, GDP could hit 6.6% in the second half on stronger

consumption and higher investment growth. Consumption growth would be boosted in

part by increased car sales on the back of reduced tariffs.

     Increased infrastructure spending, along with stable property investment in

the second half, will help underpin the overall investment outlook in the second

half, Xu said.

     Trade growth could be less favorable as the trade conflict with the U.S.

gathers pace, but industrial output would remain stable, he said.

     --SLOWER DELEVERAGE

     As Chinese authorities are now appearing keen to take a pro-growth stance,

Xu said GDP growth in the second half may be buoyed by a slowing of its

deleveraging campaign which aims to rein in shadow banking and excess borrowing.

     "The pace of deleveraging would certainly be slower in the second half than

the first half, which will offset some downward risks and stabilize economic

growth," Xu said. "But deleveraging would only slow slightly, it doesn't mean

China will stop their efforts."

     "China is sticking firmly to the deleveraging campaign because it reduces

potential risks in China's economy," Xu said, "But the strength and pace of the

structural deleveraging should be controlled according to actual situations."

     --FURTHER RRR CUTS

     China regulators have recently moved to ease restrictions and the People's

Bank of China (PBOC) injected cash via a record-high medium-lending facility

loans to ease liquidity pressure.

     "These policies are only minor adjustments, which has not changed the

prudent and tight regulation tone," Xu told MNI. They are aimed to give the

markets positive signals and help restore calm through the China-U.S. trade

tensions, Xu added.

     Monetary policy needs to be flexible to an adequate degree reflecting

slower deleveraging, Xu stressed, adding M2 growth and social financing growth

would be accelerated in the second half.

     The PBOC may cut banks' reserve requirement ratio (RRR) one or two times in

the second half, each time 0.5 percentage point, he said. Xu added the policies

should help with financing of small- and medium-sized enterprises,

micro-businesses and agricultural sector.

     However, he didn't see the central bank altering the benchmark rate.

     In order to implement the more proactive fiscal policy announced by the

government earlier this week, authorities are likely to further reduce corporate

tax rates, he said. Increasing salaries for civil servants and raising the

private-sector minimum wage to boost consumption are other options, Xu said.

     Additionally, local government financing restrictions could be loosened to

speed up infrastructure investment, Xu noted. Both lifting some quotas for local

government bond issuance and decreasing restrictions on local government

financing vehicles are possible methods, he added.

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

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

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