MNI INTERVIEW: USDCNY May Break 7 On Trade Row: BOCOM's Lian

--Modest China Growth Slowdown Seen In 2019

--GDP Growth Seen At 6.7% in 2018, May Slip To 6.5% in 2019 

--Consumption, Infrastructure Investment Lose Lustre 

     BEIJING (MNI) - China's currency could come under further pressure and fall

below a psychologically important level against the dollar if the trade war with

the U.S. intensifies, Lian Ping, chief economist at Bank of Communications

(BOCOM), told MNI in an interview.

     The dollar-yuan rate "breaking 7 isn't impossible" if the trade conflict

escalates, said Lian. "The yuan will be under pressure as the current account

surplus shrinks on reduced exports and the government's push to project a

pro-trade stance by boosting imports."

     According to Lian, 7 is an important psychological level for USDCNY and

keeping the exchange rate around 6.8 currently may be policymakers' way of

preparing the forex market for further depreciation.

     --SLOWING GROWTH

     The trade dispute may also increase headwinds for China's wider economy in

the year ahead, with both consumption and infrastructure investment further

weakening.

     "The official (GDP growth) target next year may be set at around 6.5%, and

actual growth will likely match that level," said Lian, among a group of elite

economists that advises the government.

     "GDP will grow 6.7% this year, though it's possible to see even slower

numbers in the next two quarters," he said.

     On trade, Lian said that to date, the impact of the dispute with the U.S.

had been partly offset by a weaker yuan, down almost 9% against the dollar this

year.

     --NO FURTHER LOOSENING

     Given the likely growth targets, policymakers may maintain a loosening

stance "at a proper pace", said Lian, but he doesn't think the PBOC would loosen

further after rounds of liquidity injections, including three targeted reserve

requirement ratio cuts and several MLF boosts so far this year.

     "Now it is time to retain policy stability with a priority to guide

financial institutions to channel liquidity into the real economy and boost

companies' funding desire," said the economist.

     The PBOC may still conduct another specifically-targeted RRR cut this year

while raising rates on monetary instruments, including open market operations

and MLF, in order to bolster against U.S. rate hikes rather than boost overall

liquidity levels, Lian said.

     --LOSING STEAM

     The main drivers of China's economic growth -- consumption, investment,

particularly infrastructure investment, and exports -- are all losing steam,

Lian said.

     Retail sales rose only 8.5% y/y in May, the slowest in about 16 years and

by July had only recovered to a still relatively sluggish 8.8%. Consumption

accounted for 78.5% of GDP expansion as of the end of Q2 and around 54% of total

nominal GDP in 2017, and its softness raises concerns over the viability of

overall growth.

     "Stalled growth in auto sales, lower prices of goods sold through

E-commerce and in construction materials in the property sector led to the

consumption slowdown," Lian said. Going forward, spending may be further

constrained by higher mortgage payments as house prices rise, he said.

     However, he noted, consumption may find support from government measures,

including cuts to individual taxes and moves to lower business taxes.

     Infrastructure investment growth plunged to 7.3% in H1 from 21.1% a year

ago, as the deleveraging campaign curbed local government debt and shadow

banking, but Lian doesn't see a sharp rebound in infrastructure investment,

despite fine-tuning by policy makers.

--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

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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