MNI INTERVIEW: Yuan Depreciation May Ease, PBOC Advisor Says

--Depreciation Pressure On The Yuan May Ease, Ma Jun Told MNI

--The Dollar May Weaken If The Fed Slows Hikes

--Ma Jun Sits On The PBOC's Monetary Policy Committee

--Also Optimistic For U.S.-China Trade Talks

     BEIJING (MNI) - Depreciation pressure on the yuan may ease if the Fed slows

its rate hikes, a member of the People's Bank of China's monetary policy

committee told MNI in an exclusive interview, in which he also said Chinese

authorities have switched to stabilising the economy's leverage levels, rather

than pursuing a rapid decrease in debt ratios.

     Ma Jun, who was the PBOC's chief economist until last year and is a

professor at Tsinghua university, said some market participants are expecting

the Federal Reserve to become less hawkish for fear of harming highly-leveraged

sectors of the economy, and as the stock market suffers.

     "If the Fed slows its pace, the dollar index may weaken and other

currencies would rebound," Ma said, adding that this could ease pressure on the

yuan.

     --TRADE TALK OPTIMISM

     Ma also said chances had improved for constructive talks between China and

the U.S. on resolving their trade dispute, ahead of a meeting between President

Xi Jinping and President Donald Trump set for the G20 summit in Buenos Aires at

the end of the month.

     "The U.S.'s willingness to go back to the negotiation table is rising," Ma

said, explaining that financial market volatility in response to the trade

tensions would be a concern for the U.S.

     "The Trump administration may be more confident of making a breakthrough in

talks with China after the U.S reached agreement in talks with Mexico and

Canada," Ma said.

     Turning to China's domestic economy, Ma said a "prudent and neutral"

monetary policy would centre on stabilizing levels of leverage in the economy

and that growth in the broad M2 measure of money supply should be roughly in

line with nominal GDP.

     --NO LONGER PURSUING RAPID DELEVERAGING

     "We are no longer pursuing a rapid decline in macro leverage, because

hurried attempts to do that could have side effects, including downward pressure

on the economy," Ma said, "The policy stance is quite obvious now, which is that

we are in a stage of stabilizing leverage."

     The PBOC is acting to ensure the flow of credit to private companies, which

found access to bank finance more difficult during the deleveraging campaign and

are also having to cope with U.S. tariffs, Ma said.

     "The key factors blocking monetary policy transmission have been recognized

by the authorities, and the central bank is setting up trust-building mechanisms

to support financing of private companies, including credit risk mitigation

tools and state-guaranteed funds," Ma said.

     "These efforts will ease the funding difficulties," he said, adding that

supervisors will also seek to boost the flow of information between lenders and

creditor firms and ease rules making bank officials take personal responsibility

for loans to private companies that end in default.

     PBOC Governor Yi Gang told state media on Wednesday that the central bank

would expand credit to the private sector, by launching bond financing tools and

promoting equity financing.

     --TAX CUTS A BOOST

     As the PBOC moves to boost credit, the government also plans significant

cuts to taxes and fees, said Ma.

     "This should boost market confidence and fuel the real economy," he said,

adding that he saw room for cuts in value-added tax and social security levies.

     But he stressed the government should not allow its fiscal deficit to

exceed 3% of GDP next year, as this would prompt market concerns about fiscal

sustainability. The deficit is expected to be 2.6% of GDP this year.

     "To offset the reduction of tax revenue, fiscal expenditure should

contract, particularly government investment in competitive sectors," Ma said,

"Fiscal spending and state-owned enterprises should gradually retreat from these

sectors and allow more room for the private sector."

     One source of economic stimulus could be investment in green technology and

improving the environment, Ma said, adding that authorities should consider

including green bonds in any expansion of local governments' debt quotas.

     "Compared with traditional infrastructure projects, green sectors could

meet demands for economic restructuring and boost falling investment," Ma said,

adding that he also favoured clear and practical rules to encourage

Public-Private Partnerships for environmental projects.

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

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

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