MNI INTERVIEW: China In Moderate Growth Stage: PBOC Advisor

--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

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