MNI POLICY: Tariffs Cut 0.2 Point Off China Growth: Economist

     BEIJING (MNI) - U.S. tariffs are knocking 0.2 percentage points off Chinese

GDP growth, but a full-blow trade war could increase the damage to 0.9

percentage point, a senior economist with links to the Chinese government said.

     Zhang Ming, a director at the Research Institute of World Economy and

Politics under the Chinese Academy of Social Sciences, said that downward

economic pressure has been worse than shown by official data, prompting the

government to step up its policy responses.

     Growth could slow from 6.5% to 6.6% this year to 6.3% in 2019, with the low

point coming in the second quarter before a pick-up in the second half, Zhang

told a forum in Beijing held by Sino-Foreign Management magazine over the

weekend.

     The rate of expansion would be significantly lower if the trade dispute

intensifies. In the event that the U.S. also increases restrictions on Chinese

investment -- which will curb China's acquisition of advanced technology -

growth could be shaved by up to 1.1 percent points, he said.

     But Li Daokui, a former member of the monetary policy committee of the

People's Bank of China, told the same forum that the economy may already have

passed its lowest point. A constructive phone conversation between President Xi

Jinping and U.S. President Donald Trump last week, which raised hopes of

progress towards easing trade tensions, together with government moves to slow

its deleveraging campaign and support private companies, should all contribute

to settling financial markets and the yuan exchange rate, he said.

     "In the short term, our economy may have bottomed out," Li said.

     --LONG-TERM TENSIONS

     Zhang, however, called Li "very optimistic."

     Global economies outside the U.S. are slowing, monetary policies diverging

as the Federal Reserve increases interest rates, and oil prices rising, he said.

Tensions with the U.S. will also be difficult to resolve and potentially

long-lived, spanning competing systems and ideology as well as U.S. resistance

both to China's state support for industry and, more generally, to its rise to

national prominence, he said.

     "More conflicts could emerge ... we can't be too optimistic in the short

term but should acknowledge that it could be prolonged and complicated," said

Zhang, adding that the U.S. aimed to rebuild trade rules to shut out China.

     At any rate, China should avoid any temptation to prompt the yuan to

appreciate in order to cut its trade surplus with the U.S., Zhang said, pointing

to the dangers of market distortion and of causing asset price bubbles, as

occurred in Japan after the Plaza Accord led to a stronger yen in the latter

half of the 1980s.

     "In the short term, I personally think the yuan exchange rate does not have

a big chance of dropping above the 7 level against the dollar," Zhang said.

"Even if it broke 7 it could be a correction in a range very close to 7."

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

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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