MNI POLICY: China Can Tolerate Higher Fiscal Gap: Govt Advisor

     BEIJING (MNI) - China could consider allowing the deficit-to-GDP ratio to

breach the previous 3% cap to support growth this year and ease pressure from

stalling fiscal revenues, Liu Huan, a counsellor to the State Council, said at a

briefing on Tuesday. 

     Here are key takeaways from comments by Liu, Counsellor Xia Bin, who is  a

former member of the People's Bank of China monetary policy committee, and Zong

Liang, the chief analyst at Bank of China's Institute of International Finance:

     - The Coronavirus outbreak discourages public gatherings, which can have

wide impact on service industries such as films and entertainment, travels and

dining, so its impact should not be underestimated, especially in Q1, Liu said.

In the year when SARS hit China, the economy contracted in the first half, he

said. However, like SARS, the outbreak is likely to disappear when the weather

warms up in the spring, Liu said.

     - China is unlikely to repeat the double-digit growth performance seen in

the early 2000s, when U.S. bull markets amplified demand for Chinese goods, said

Xia. China faces slower export demand now, while structural changes like SOE

reform and policies improving the environment and social equality all add costs,

he said.  

     - Signing the 'Phase One' agreement benefits China, the U.S. and the rest

of the world as Beijing embraces globalization, Xia said. Going forward, China

should continue to engage in talks with the U.S., even as outcomes will remain

uncertain as long as Washington maintains the 'America First' stance, he said.

     - Zong was more optimistic on the next phase of the China-U.S.

negotiations, saying China is already striving to reduce the so-called negative

list of areas closed to foreign investments and treat all companies equally,

noting the demand by the U.S. may be in line with China's development direction.

     - On countercyclical measures, Xia said while the money supply won't

suddenly tighten, it is slowly stabilizing and the PBOC is likely to continue

with prudent monetary policies that are more cautious than those of the U.S.,

the eurozone and Japan. China must be aware of risks, so policies cannot be too

loose, he said.

     - The State Council should stop setting specific targets such as M2 growth

for the PBOC, but let the central bank make the finer and complex operations,

Xia said. 

     - Helping SMEs must still observe market rules as in a period of downturn,

some businesses have to fail, Xia said. Structural changes have to be painful

and resolving risks means shrinking the balance sheets and losses for some, he

said.  

     - Local government debt may rise this year given fiscal difficulties partly

resulting from tax and fee cuts, Liu said. Local debt issuances must be under

greater scrutiny on both purpose and efficiency, Liu said. 

--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

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