MNI INTERVIEW: China Must Boost Infrastructure Finance:Advisor

     BEIJING (MNI) - China must tackle structural reform of the financial sector

and establish a special channel for financing infrastructure projects, a leading

Chinese government advisor told MNI Tuesday.

     Much of the economy's slowdown was due to problems of financing

infrastructure problems not yet having been tackled, said Li Daokui, a member of

the economy committee of the Chinese People's Political Consultative Conference

(CPPCC), pointing to negative real infrastructure investment growth in 2018.

     Li also pointed to divergence between interbank markets and exchange traded

bonds, seeing the lack of integration contribute to problems seeing monetary

policy transmitted to the real economy.

     --TRANSMISSION ISSUES

     "For interest rates in the money market to be transmitted to the loan

market, they need to go through fixed-income operations or bond market. But now,

the two markets are not aligned, so it's hard (for such transmission)," said Li,

a former member of the People's Bank of China monetary policy committee.

     Banks must also address their risk profile, particularly bad loans, to

properly address transmission issues, Li added, so liquidity could flow through

to small and micro businesses.

     "If banks can't remove risks of bad loans, they are unable -- nor dare --

grant too many loans," he said. However, he did say perhaps a more lenient

enforcement of NPL ratios by the authorities was needed.

     "Rules that financial institution executives should for their life be

responsible for bad loans, I think this needs to be adjusted," Li noted, as such

rules hinder lending to companies with weaker balance sheets and firms without

strong support of the government.

     Li also told MNI the stock market reform should be another part of China's

financial structural reform, with stricter enforcement of of the law needed

against transgressors.

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

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

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