MNI Policy: China Should Boost Demand by Fiscal Measures: PBOC

     BEIJING (MNI) - China should pursue more proactive fiscal policies to

revive weakening demand and sustain growth, while limiting the role of monetary

expansion, Xu Zhong, head of the research bureau at the People's Bank of China

(PBOC), said on Tuesday. 

     Citing the economist John Keynes, Xu argued that the government must

prioritize recovery over reform. The main challenge now is a lack of "effective

demand" that may extend into next year, so policymakers should focus on raising

short-term demand, Xu said at a forum in Beijing.

     Xu downplayed the role of monetary policy in recovery, arguing against

"blindly expanding" M2 and social financing, which he said adds pressure to

inflation and asset prices. The two gauges correlate less with the real economy

as China shifts to more a consumption-driven economy, which is less

liquidity-dependent, he said. 

     "The road of transmission from monetary expansion to the real economy is

long while its effects slow," Xu said. 

     --PROPERTY, INFRATRUCTURE

     For boosting short-term demand, Xu suggested supporting the property

industry by easing capital-raising pressure on developers and setting up REITS.

As well, regulators should allow local governments with good standing to raise

debt to boost infrastructure building, he said. 

     Reducing social security fees charged to businesses and cutting value-added

and individual taxes are both viable solutions, Xu argued.

     Fiscal authorities should also support spending on infrastructure to

increase demand, Xu said. "There is more room for the central government fiscal

deficit to expand," he said.

     Returning to monetary policy aspect, Xu said pressure on capital from

deleveraging on lenders can be eased through alternative funding sources such as

the securitization of assets. Lenders should be guided to channel funding to

private businesses, he said. 

--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

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