MNI POLICY: China Shouldn't Dump USTs Or Expand Spat: Fan Gang

--U.S.-Sino Trade Deficit May Expand On Restricted Hi-Tech Exports

--China Should Boost Exports To Asian, OBOR countries

     BEIJING (MNI) - China should not dump its holdings of U.S Treasuries, but

act rationally and not expand the fight into other fields, Fan Gang, a former

member of Monetary Policy Committee of the People's Bank of China said in a

speech this week.

     "We cannot open a new battleground, particularly into capital markets," he

said.

     The other main points from Fan's speech were:

     --There is little chance of the Sino/U.S. trade deficit decreasing all the

while Washington imposes strict restrictions on the export of hi-tech products

to China, said Fan, now a director at the National Economic Research Institute.

"As the U.S imports low-end products from China, it needs to export high-end

ones that China wants to make a balance," Fan said, noting the U.S is refusing

to use its comparative advantages.

     --The recent weakness of the yuan will help take some of the pressure off

exporters, offsetting some of the impacts of tariffs. "The volatility of the

yuan in forex market has also offset impacts," he said. However, Fan underlined

the yuan would not fall sharply. "The trade war indeed pressures the yuan, but

the yuan will fluctuate at a graduate pace, not a sharp decline like Turkey."

     --Washington's main aim in the current dispute is not to reduce the trade

deficit between the two nations, but to restrain China's growth, particularly in

the technology field, the economist noted. "Trade conflicts can be relaxed, but

suppression will not end," Fan said, "It cannot be solved by one or two

negotiations."

     --China has created some of its own trade problems through historical

support for the export sector via policies such as export tax rebate policy and

now needed to examine is standing. "We have to see we indeed have some problems.

As a middle-income country, China still enjoys some special treatments for

low-income developing countries, including some protectionist policies. And that

is 15 years after China entered WTO," Fan said. China should improve its

competitiveness in the process of further opening up, rather than more

protectionism, he said.

     --The main impact to date from the trade war has come through market

sentiment -- the panic triggered by uncertainty. However, the volatility will

likely be short-term until the situation becomes clear. "The recent decline in

private equity investment is closely related to the trade war, which has

increased investment uncertainty. 

     --Any impact on China's economy from the trade war will be limited, as only

17% of China's total exports go to the U.S. and there is a huge and growing

domestic economy to help take up any slack. China could also look to increase

exports to other countries, particularly Asian counterparts and countries

adjoining the Belt and Road Initiatives, Fan said.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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