MNI INTERVIEW: Ex-PBOC Economist Sees China Slowing Investment

--Property And Infrastructure Investment May Slow

--Employment Index Replaces GDP As Macro-Control Tool

     BEIJING (MNI) - China has sent a strong signal that it is determined to

slow its investment-fuelled growth this year to create room for deepening

structural reforms, Ma Jun, former chief economist at the People's Bank of

China, told MNI in an exclusive interview.

     Ma spoke to MNI after the opening of the annual National People's Congress

on Monday, when Premier Li Keqiang said the country will seek growth around 6.5%

in 2018, considerably slower than 6.9% growth registered last year.

     A growth target lower than actually seen in 2017 is most likely due to

expected moderation in investment growth, especially in the property and

infrastructure sectors, said Ma, who is now the director of Tsinghua

University's Finance and Development Research Centre, a prominent financial

think tank.

     "Real estate investment growth will likely decelerate as property controls

curb sales," Ma said. Meanwhile, as the central government reins in local

authorities' borrowing capabilities to control debt, some infrastructure

projects, such as roads or airports, may take a hit, according to Ma.

     China scaling back construction activities may have wide-ranging

implications, particularly for commodity exporters such as Australia or Brazil,

which supply iron ore to the world's biggest steel consumption. Domestically, it

may also slow services and the sales of consumer goods, such as household

appliances.

     --SUBTLE REFLECTION

     Policymakers' true intentions are subtly reflected in the wording of Li's

speech. On the surface, the GDP target expressed by Li is the same as last

year's. "GDP growth of around 6.5%, or higher if possible in practice," Li said

in a speech March 2017. In this year's speech, the second part of the sentence

was removed.

     Slowing growth is also consistent with the outcome of last year's 19th

Congress of the Communist Party of China. General Secretary Xi Jinping in his

marathon speech said China would eventually scrap aiming to "multiply" its GDP,

instead seeking a land of "clear water and blue skies."

     Ma himself has long been an advocate of using GDP growth as but one tool to

monitor the state of the economy, rather than a macro policy objective. Applying

it as a performance target puts pressure on local officials to resort to

excessive debt financing for projects, compromising the government's goal of

deleveraging the economy and controlling financial risks, Ma said.

--EMPLOYMENT TARGET

     While deemphasizing growth, the government's annual objectives for the

first time included employment, setting the urban unemployment rate ceiling at

5.5%. 

     That is a sensible approach considering employment is the cornerstone of

social stability, Ma said. It is also a major step towards transparency as now

the Statistical Bureau will likely publish the surveyed urban jobless rate

periodically, Ma added. 

     In fact, as China transitions to a service-oriented economy, it takes less

quantitative growth to keep the increasing labor force employed. Liu Yingjie,

head of policy research of the State Council, commented on Monday that each

percentage point of growth generates 2 million jobs in the new economy.

     For the first time in five years, China aims to shrink its budget deficit.

With the size of the deficit capped at CNY2.38 trillion, the resulting fiscal

deficit ratio measured against GDP will decline to 2.6% from 3% last year.

     "That shows the government is confident that consumption will be stable

enough to be the pillar of growth," Ma said.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

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