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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.
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.
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