MNI INTERVIEW: China 2021 GDP May Hit +9%: PBOC MPC's Ma Jun

Chinese GDP could jump by 9% in 2021 and be growing by 6% in the fourth quarter as core inflation picks up, helping authorities to begin to return to normal policy settings from the start of next year, People's Bank of China monetary policy committee Ma Jun told MNI.

"As the real economy goes back to normal, macro policy should be normal too," Ma said in an interview, adding that Covid-19 control measures could be phased out from as early as the beginning of next year. The low base comparison would fuel a big jump in 2021 output, he said.

A robust recovery and the impact of previous PBOC easing should drive a recovery in core inflation, which provides a better gauge of the shape of the overall economy than the volatile headline number, according to Ma, also director of the Research Center for Green Finance Development under Tsinghua Unviersity PBC School of Finance. Core inflation fell to a record low 0.5% y/y in July and August, from 2.5% in February 2018, sparking concerns about sluggish demand.

"The greatest impact of monetary policy moves on inflation comes with a lag of about four to six quarters, so inflation should fully reflect the impact of the strong anti-cyclical monetary actions the PBOC imposed in the middle of next year," said Ma, adding that a "normal" state for China's economy would see GDP growth hitting about 6% from Q2' s 3.2%, the surveyed unemployment rate back at 5.5% from today's 5.7% and inflation within a reasonable range.

Ma was sanguine as to the effects of the appreciation of the yuan, which touched a 17-month-high 6.75 against the dollar on onshore markets last week.

The exchange rate is still within a "comfortable zone", with little evidence that exports have been affected, he said, adding that the dollar weakness which has driven the yuan's appreciation may not persist throughout the next six months as the U.S. economic recovery quickens.

While a stronger yuan could attract capital inflows, these have not so far reached excessive levels, he said, adding that more time is required to judge whether investors have formed expectations of steady yuan appreciation and whether that is attracting dangerous levels of foreign funds.

Normalisation of macro policy would see the M2 measure of broad money rising in line with nominal GDP and the central government's fiscal deficit dropping below 3% of GDP from the current target of 3.6%, said Ma.

M2 jumped by 11.1% y/y in Q2 from 8.4% growth in February as the central bank increased the money supply to counter the epidemic. M2 growth fell to 10.4% in August, but was still much higher than nominal GDP growth.