MNI INTERVIEW2: China Should Ease Online Lending Rules-Advisor

--Banks Should Sacrifice Some Profits to Protect Micro Businesses

--Debt/GDP Ratio Should Be Raised Significantly

--Part 2 of interview with State Council Advisor

     BEIJING (MNI) - Chinese monetary policymakers are likely to take a cautious

approach towards cutting the benchmark deposit rate to avert any rush to riskier

savings products, but should push for banks to boost lending and relax controls

on online providers of micro-finance, a counsellor at the State Council told

MNI.

     The People's Bank of China could further cut benchmark lending rates as

well as banks' reserve requirement ratios, Tang Min, an economist at the

advisory body inside Premier Li Keqiang's cabinet, said. But a reduction in

deposit rates could drain banks' saving pool, he said, in an interview in which

he also anticipated a stable yuan this year.

     Reducing banks' profits from holding the deposit rate steady while lending

rates are falling is a price worth paying, Tang said, pointing to Chinese

lenders' higher margins relative to their overseas peers and other domestic

businesses.

     The authorities should also focus on using microfinance tools to

immediately boost lending to entrepreneurs and micro businesses, which are key

to sustaining employment but often have little access to traditional bank

credit, Tang said. Regulators could loosen restrictions on online-based lenders

such as MY Bank and We Bank, run by Alibaba Group Holding Ltd. and Tencent

Holdings Ltd. respectively, as their low cost structure and rich data bases make

them ideal sources of micro loans, he added.

     --HELP FOR SMALL BUSINESSES

     The self-employed account for about 110 million urban jobs out of the total

400 million. In 2018, smaller companies created all net new jobs nationwide,

Tang said, arguing that measures to boost bank lending will not be enough to

help such firms and calling for China to lead the world in encouraging

online-based small business loans.

     MYBank, owned by e-commerce giant Alibaba, has lent 24 million clients an

average CNY30,000 over the past five years, with a bad loan rate of only about

1%, he said. The company provides easily accessible credit to small business and

rural customers with the help of AI and big-data technology.

     Policymakers could ease restrictions on the expansion of online lenders, as

well as encourage traditional banks to cooperate with them by providing funding,

Tang said.

     China's ceiling for its fiscal deficit/GDP ratio should be raised

significantly from 2.8% last year given the resources required to fight the

pandemic and revive growth, Tang said. Issuance of much-anticipated special

treasury bills will bolster employment and people's livelihoods, as well as

support hi-tech infrastructure projects, he said.

     Both government and corporate sectors will have to take on more leverage,

given the need to keep the economy intact, Tang said, noting that China's

government bonds remain attractive to domestic investors.

     China will be likely to keep the yuan stable as too much strength pressures

exports while weakness hurts the currency's international standing. "There is

little chance of significant volatility in the yuan this year" given that

China's economy has proven more resilient than elsewhere, he said.

     But authorities should remain vigilant to the risks of volatile capital

flows during a period of global market turmoil, with Tang noting that they had

had sufficient tools to keep these under control including QFII and QDII.

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

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

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

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