MNI INTERVIEW: Room For China Tariff Cuts, Researcher Says

By Iris Ouyang

     BEIJING (MNI) - China has room to cut import tariffs on goods such as

agricultural produce as it shifts its focus to high-quality growth, but opening

its financial sector to global capital flows must proceed only gradually as more

progress is made towards yuan internationalisation, a senior researcher from a

MOFCOM-affiliated think tank told MNI in an interview.

     More tariff cuts will likely come through free-trade agreements, and would

also include industrial components for some key sectors, medicines and luxury

goods, said Zhu Caihua, deputy head of the foreign trade institute under the

Chinese Academy of International Trade and Economic Cooperation.

     Temporary tariff cuts already in place on U.S.-made autos until April 1,

made as a goodwill gesture during trade talks, could also become permanent if a

deal is reached with Washington, Zhu said. China had raised tariffs on U.S.

autos to 25% in the early days of the dispute.

     But greater liberalisation of financial services should only come after

improvement in the sector's health and more progress towards

internationalization of the yuan.

     "Too fast an opening could lead to bursting of asset bubbles and financial

risks," Zhu said.

     --YUAN INTERNATIONALIZATION

     "The full opening of financial markets needs a currency that can support

it," she added, "If China's currency is hit by a market shock, then the economy

will suffer."

     China wants a stable exchange rate, said Zhu, despite U.S. claims that it

has pursued a policy of devaluation.

     "Only when investors have confidence in the yuan, and aspire to settle

their accounts in yuan, and the exchange rate is relatively stable and

predictable, can yuan internationalization advance," she said.

     Zhu saw room for China to further open its manufacturing sector, arguing

that fresh competition in the domestic market would make Chinese companies grow

stronger, although she did not think this should happen overnight.

     "We don't advocate a sudden opening like Russia's. Our opening-up model is

gradual, that's why we need to establish free-trade zones and Hainan free-trade

harbours."

     --TRADE TENSIONS

     China's growth in recent decades means it can accept "fair competition"

with the U.S. in most areas, although it remains a developing nation, Zhu said.

     "Competition should be encouraged on both sides since this is the real

value of market economy. Of course, competition should also be based on fair

play. An elephant can never be a fair player against an ant," she said, adding

that China will make the playing field more level for foreign companies.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MX$$$$,MGQ$$$]