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MNI INTERVIEW: China In Moderate Growth Stage: PBOC Advisor

MNI (London)
--Need GDP Growth At 6.3% Before 2020, 5%-6% After 2020
--Leverage Ratio To Decline At Gradual Pace As Growth Focus Changes
--Limited Room For Further Tax Cut Due Fiscal Deficit Pressure
     BEIJING (MNI) - China's economy has started to level out, entering a period
of moderate growth, but it won't see a V-shape or U-shape rebound as the
development model based on high investment, particularly in infrastructure,
property and exports, has changed, a senior advisor to the People's Bank of
China told MNI.
     "China just needs to maintain GDP growth of 6.3% before 2020 to meet our
target, while 5% to 6% growth will be good enough after that," Liu Shijin, a
member of the PBOC's Monetary Policy Committee, told MNI on the sidelines of
Yichun Forum held by China Finance 40 Forum, a prominent Chinese think tank.
     China GDP dropped below a double digital growth since the third quarter of
2010 and showed a declining trend since then. The latest GDP in the second
quarter recorded 6.7%, the lowest since Sep, 2016. But the advisor to the
central government said the economic growth has started to stabilize.
     Liu, vice president of the China Development Research Foundation, a
government think tank and one of major official proposers for the "new normal"
and "L-shape development" theories, said it is not impossible for growth to rise
to 7% if some sharp stimulus measures were taken, but it would only have a
short-term effect and would have side effects.
     "The targets of economic growth will focus on stabilizing employment,
reducing leverage ratios, improving corporate profits and realizing
environmental sustainability," Liu said, stressing that GDP growth will not be
the priority.
     --LEVERAGE RATIO
     China's leverage ratio will decrease at a gradual pace as factors used to
push the ratio higher have changed due to the focus of economic growth shifting,
Liu said.
     "The shadow banking channels have been curbed by strict financial
regulations, and the restriction on the invisible debt of local governments and
the campaign to remove excess production capacity have made progress, which will
help lower the leverage ratio in the future," Liu noted.
     --OPENING-UP FINANCIAL SECTOR
     The financial sector should improve its competitiveness and enhance support
to private companies while opening up to external counterparts, Liu said.
     "The financial sector should improve support to the real economy,
particularly private companies as they produce over 60% of China's total output,
but got less than 50% of overall credit," he said.
     According to the PBOC's latest monetary policy report, the average lending
rate of non-financial institutes as of the end of June stood at 5.97%, compared
with 5.27% in December, indicating the real economy is still suffering from high
financing costs, even after the PBOC has flooded the market with liquidity.
     --REBALANCING REFORM
     At the China Communist Party's latest politburo meeting, the top
decision-making body demanded fiscal policy play a more proactive role in both
the further expansion of domestic demand and restructuring, widely interpreted
by market analysts that the further tax reductions will be seen.
     However, Liu expressed disagreement, saying "Under the current tax system
with pressure on the fiscal deficit, the room for further tax reduction is quite
limited," Liu said.
     However, reform of state-owned companies should be pushed forward and
state-owned capital should withdraw from the traditional corporate system,
particularly industries suffering from over capacity and low competitiveness, Li
warned.
--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
[TOPICS: MAQDS$,M$A$$$,M$Q$$$,MT$$$$,MX$$$$,MGQ$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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