MNI Policy: Local Govt Debt A 'Major Challenge': Ex PBOC Offl

     BEIJING (MNI) - China is steadfastly tackling local government debt

problems, but achieving result may take much time and effort, Hu Xiaolian,

former deputy governor of the People's Bank of China and now the chairwoman of

the Export-Import Bank Of China, said Saturday during China Finance 40 Yichun

Forum in northeastern Heilongjiang province by CF40, a prominent Chinese think

tank.

     Here are the key points made by Hu:

     -China's local governments are heavily burdened by invisible debt, which

poses a major challenge for the central government. Deep reform and

transformation of government functions have to take place. The invisible debt's

medium-term pressure on China's fiscal policies can't be ignored, though fiscal

deficit ratio is in a reasonable range.

     -Capital outflow by current account may be possible or even inevitable.

Although policymakers don't want to see the expansion of current account

deficit, it is decided by fundamental changes as savings ratio is declining and

fiscal deficit may increases.

     -Capital outflow via capital accounts will increase as cross-border

investment including Belt and Road Initiative is growing and the liquidity of

U.S. dollar is squeezed.

     -Now is an opportunity for the yuan to go global as the U.S. is "waving its

tariff stick" and imposing a series of "America First" policies. But the

China-U.S. trade conflicts will directly reduce the trade surplus of China,

while the deficit in service sector may not likely improve soon.

     -China needs a market-oriented yuan exchange rate formation mechanism with

transparent and effective regulations in the process of opening up its financial

sector.

--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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