MNI Interview: China Seen Refraining From Stimulus: Economist

By William Bi

     BEIJING (MNI) - China's policymakers will be focused on rebalancing the

economy next year, refraining from using stimulus packages to avoid worsening

the country's debt burdens, according to a leading economist.

     "There is no way" that the economy will be faster than this year, but will

likely register a still healthy 6.5%, Lu Zhengwei, the chief economist of

Industrial Bank of China, said in an interview Wednesday on the sidelines of a

commodities conference in Guangzhou. "The central government is just not too

concerned about growth," he said. 

     China's economy expanded 6.8% in the third quarter after 6.9% growth in the

first two quarters of the year. The government had targeted a growth rate of

around 6.5% for the year.

     While October production numbers that came out a few days ago were slightly

less than expected, China's growth this year is certain to beat the 6.5% target.

However, views for next year are more divergent, as a chorus of economists,

including China International Capital Corp., HSBC and Founder Securities are

projecting growth as high as 6.9%.

     "You can't find a single focal driver in China's growth like we had before,

such as real estate or cars," even as the consumption-based driver gathers more

pace, said Lu, who had been a member of a select group of economists to have

advised Premier Li Keqiang.

     Lu also said the real estate market would no longer be a main driver of

growth as the government maintains its tight watch over any potential bubbles,

and also considering President Xi Jinping's vow that "houses are for living in,

not for speculating on." Top officials including Finance Minister Xiao Jie have

also said that a property tax will be made into law, which will make owning

property more expensive.

     While the government has been encouraging investment in rental properties,

that investment will amount to a few hundred billion yuan, or about 3% of total

property investment, which is insufficient to make a sizeable impact, Lu said.

     Out of the three main drivers of China's economy -- trade, spending and

investment -- Lu said he was most cautious on investment, which is dominated by

state-owned entities.

     Local government debt is also something that has alarmed the central

government and must be paid greater attention to, Lu said. 

     Media including Caixin continued to report this month that a subway project

in Baotou, Inner Mongolia autonomous region, was ordered to halt construction in

August on concerns it would create a dangerous debt load for the local

government. Other cities have also reportedly been told to cut back on expensive

projects, according to Chinese media.

     "That's a strong signal" that the central government is hitting the brakes

on infrastructure projects that put too great a burden on local government

finances, Lu said. Instead, spending will be focused on "targeted" poverty

reduction, such as relocating people away from areas less suitable for living,

other measures to help the poor, and large-scale restoration of polluted areas,

such as river systems, Lu said.

     With robust manufacturing investment, continued growth in consumption and

greater export demand, China's economy may do well even with little government

intervention, which is why the ruling Communist Party had the confidence to

abandon such hard targets as a doubling of GDP, Lu said.

     When asked what factors could derail China's growth next year, Lu pointed

to external demand. A sputtering world economy and an overly strong yuan can

hurt exports. This year, however, exports have been unexpectedly strong, giving

China more time to rebalance its economy, Lu said.

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

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