MNI INTERVIEW: China May Cut Taxes, Could Add Extra Stimulus

--More Forceful Stimulus Measures Could Be Seen if Growth Falls Near 6%

--Former Commerce Ministry Researcher Huo Says Export Growth Slowing

--No Immediate End to Sino/U.S. Trade War Seen

By Iris Ouyang

     BEIJING (MNI) - China's government is considering bigger tax cuts for

businesses and individuals and could apply further stimulus measures if sluggish

domestic demand and trade war with the U.S. threaten to drag growth closer to

6%, a former research head at the Ministry of Commerce told MNI.

     While GDP growth may fall below 6.5% in 2019, the government has tools to

ensure the rate of expansion holds well above 6% over the next two years, said

Huo Jianguo, former head of the research department at the commerce ministry.

Such measures could help support China's economy until the U.S. is readier to

compromise in the tariffs dispute, perhaps if the effect of Washington's fiscal

stimulus diminish from next year, he said.

     "We still have leeway to ensure 6.5% growth" over the next two years," said

Huo, now the vice chairman of the MOFCOM-supervised China Society for WTO

Studies.

     The Chinese government is targetting growth of "around 6.5%" this year.

     But countering downward pressure on the economy would be no easy task, as

room for manoeuvre is limited, Huo said. The People's Bank of China has already

lowered banks' reserve requirements ratio four times this year, while the

National Development and Reform Commission has boosted infrastructure investment

in less-developed areas.

     --CUTTING BUSINESS, INCOME TAX UNDER DISCUSSION

     Moves under discussion such as slashing value-added taxes for businesses

and income taxes could have more of an impact, Huo said. Further stimulus moves

could be added if growth still sags, he said.

     One measure recently introduced was to raise tax rebates by up to 5

percentage points to help some exporters, although rebates for resource-heavy

industrial products were left unchanged.

     "If the policy adjustments don't work well, we may continue to cut taxes as

it could help the economy," Huo said. "The current increase of tax refunds

sometimes isn't enough to solve problems."

     While exports slowed in September due to the dispute with Washington, there

was still some growth in the sector, Huo said. "There could be an obvious three

to four percentage point slowing as U.S.-China trade still comprises a large

part (of the total)," he said.

     Growth in exports in September is seen at 9.1%, with imports rising 15%,

according to 13 financial institutions surveyed by MNI. That compares with 9.8%

and 20% gains respectively in August. Official data will be released Oct. 12.

     --NO IMMEDIATE END

     With the U.S. still enjoying strong growth and a buoyant stock market,

there are no signs of an early end to the trade dispute, Huo said, although he

noted the U.S. administration may be more willing to cut a deal next year should

the effect of current fiscal stimulus cool.

     "China then would make some compromises, and the problems would be solved

very easily," said Huo, who is also a senior fellow at the Center for China and

Globalization.

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

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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