MNI INTERVIEW: China 2020 Growth May Recover to 4%-Counsellor

--China Lawmakers May Set Annual Growth Target

     BEIJING (MNI) - China's economy could bounce back from Covid-19 and grow by

4% in 2020 if the outbreak remains under control and the right policies are

pursued, including an expanded fiscal deficit, an advisor to the State Council

told MNI in an exclusive interview.

     "I believe the Chinese economy will stabilise and gradually improve," Liu

Huan, a counsellor to the State Council, said on Tuesday. "The most difficult

period has passed; no matter what, the outbreak has been effectively controlled

domestically."

     The government's fiscal deficit is likely to rise significantly, possibly

exceeding 3% of gross domestic product or even 4%, Liu said, adding that broader

measures of the deficit, including issuance of special Treasury bonds and local

government special bonds, could total CNY5 trillion. He cautioned, however,

against allowing excessive money supply growth to fuel inflation.

     After contracting 6.8% y/y in Q1, China could see flat GDP in Q2, before

growing by 6% y/y in both Q3 and Q4, he said.

     --GDP TARGET

     In contrast to some advisors, who have indicated the government may do away

with its usual practice of setting a GDP target, Liu said a target could be

announced at this week's set-piece National People's Congress, although he

stressed that that was just his personal view.

     "If we can achieve 3% growth, given the epidemic, that would be a

tremendous success," he said.

     The government could issue special Treasury bonds to raise funds to boost

infrastructure spending in targeted industries, Liu said. The bonds would also

serve to absorb excess liquidity and provide investable assets for savers. About

CNY1 trillion could be targeted at retail buyers, with a 3%-4% coupon on

10-20-year bonds providing better returns than bank deposits, he said.

     Quotas for issuance of local government special bonds, which are paid off

by returns on projects they fund, could also be expanded, Liu said. A total of

CNY2.29 trillion had been approved by the end of May.

     While Finance Minister Liu Kun has called for "more proactive fiscal

policies," the fiscal boost will almost certainly need to come from spending, as

the options for reducing tax are limited following CNY2.3 trillion in cuts last

year, Liu said. Tax cuts are only effective when businesses are profitable, so

would be of little benefit in the current environment, he said.

     --JOBS CHALLENGE

     The government faces mounting pressure to provide jobs, a more challenging

prospect in coming months given the outbreak, Liu said, though he noted that

many baby boomers will exit the workforce in the next few years, creating

vacancies.

     In the near term, migrant workers can be employed in the post-Covid

economy, delivering packages or returning to their home regions to work on the

land or start small ventures such as selling local products online, Liu 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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