MNI INTERVIEW: Tariffs To Weigh On H1 China Trade: Advisor

--Trade Advisor Says Talks With The U.S. Still Difficult

     BEIJING (MNI) - Base effects and U.S. tariffs will cause Chinese trade data

to remain sluggish during the first six months of 2019, after December saw the

sharpest fall in exports in two years and as difficult talks continue with the

U.S., a government advisor told MNI.

     Previous high levels of trade growth are looking unsustainable, said Chen

Fengying, a researcher at the China Institutes of Contemporary International

Relations and an advisor to the government on China-U.S. Strategic and Economic

Dialogue, noting that the world's second-largest economy will slow in the first

six months of this year, while the second half could see some improvement.

     Base effects like those which weighed on December's trade performance will

continue to act as a drag in coming months, said Chen, also a member of the

board of directors of the China International Economic Relations Association, a

People's Bank of China-managed think tank

     "It will be difficult in the first quarter this year, although the economy

should stabilize in the second quarter, with a possibility that growth slows

further," Chen said, noting a lack of momentum from consumption, as consumers

delay upgrades of some products.

     Like other advisors who have spoken to MNI, Chen welcomed signs of progress

in talks with the U.S., after presidents Xi Jinping and Donald Trump agreed a

90-day period for negotiations from the beginning of December. But she cautioned

that major disagreements could persist beyond the truce window, noting that

differences on touchy subjects such as subsidies and alleged forced technology

transfers have still to be tackled.

     "It's a good sign that both sides return to a rational status and the

sincerity increases," Chen said, adding that the U.S. is likely to ratchet up

its demands. "It's impossible for all the problems to be resolved within 90

days."

     --EXPORTS HIT

     China's exports are already showing the effect of the dispute, falling 4.4%

y/y in December, the most in two years, despite a boost from trade brought

forward to avoid a rise in U.S. tariffs and far below the 5.4% gain in November

and the 4.8% median forecast in an MNI survey. Imports declined 7.6%, the most

since July 2016, breaking a 25-consecutive-month gain and much lower than the 8%

growth predicted in the survey.

     Chen sees GDP growth of 6.3% for the whole year, down from 6.6% in 2018,

the lowest in 28 years, although she expected support from an increase in

government-backed infrastructure investment.

     Looking further forward, Chen highlights 2020 as possibly problematic for

the global economy, which will enter a "dangerous period" as the economic cycle

advances.

     Meanwhile, growth in the M2 measure of broad money could return to 9% this

year and should be above 8.5%, enabling a recovery in equity prices, Chen said.

     "The M2 growth rate is a weather vane (for China's economy)," Chen told

MNI. "But if it exceeds the double-digit level, we are excessively flooding

credit into the economy."

     She stressed that speculation in the financial markets should be cracked

down upon, but not at a pace that could curb development of the overall economy.

     China's policymakers have reined in fast pace of credit growth in recent

years, aiming to curb growing debt levels, pushing M2 growth to an historic low

8.1% in December.

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

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

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