MNI POLICY,UPDATE:Call For China To Weigh Virus Economy Impact

--Updates with more detailed comments by Xia, Liu

     BEIJING (MNI) - China may need more proactive fiscal policies to avert a

slowdown, allowing a budget deficit of as much as 3% of gross domestic product,

Liu Huan, a counsellor to the State Council, said at a briefing on Tuesday, in

which he advised officials not to underestimate the potential economic impact

from an outbreak of coronavirus.

     Here are key takeaways from comments by Liu, Counsellor Xia Bin, who is a

former member of the People's Bank of China monetary policy committee, and Zong

Liang, chief analyst at the Bank of China's Institute of International Finance:

     --China should remember lessons from the SARS outbreak 17 years ago and

cancel large-scale public gatherings and reduce unnecessary travel, Liu said.

The outbreak's economic impact should not be underestimated, especially in Q1

and particularly on service industries, Liu said. The economy contracted in the

first half of 2003 due to SARS, he recalled.

     --China is unlikely to repeat its double-digit growth performance from 2000

to the Great Financial Crisis, when U.S. macro-policy missteps amplified demand

for Chinese goods, said Xia. China's exports have slowed as it undertakes

structural reform. Measures such as reform of state-owned enterprises and steps

to improve the environment and social equality have also added costs, he said.

     --Signing the 'Phase One' agreement benefits China, the U.S. and the rest

of the world as Beijing embraces globalisation, Xia said. Going forward, China

should continue to engage in talks with the U.S., even as outcomes will remain

uncertain as long as Washington maintains the 'America First' stance, he said.

     --Zong was more optimistic on the next phase of the China-U.S.

negotiations, saying China is already striving to reduce the so-called negative

list of areas closed to foreign investments and treat all companies equally. The

U.S. demand is line with China's own policy preferences as it develops, he said.

     --Xia said that while the money supply won't suddenly tighten, it is slowly

stabilising and the PBOC is likely to continue with prudent monetary policies

that are more cautious than those of the U.S., the eurozone and Japan. China

must remain alert to risks, so policies cannot be too loose, he said.

     --The State Council should stop setting specific targets such as M2 growth

for the PBOC but provide instead macroeconomic adjustment targets and let the

central bank itself make the finer and complex operations, Xia said.

     --While it is normal for some businesses to fail during the economic cycle,

and necessary for the authorities to provide assistance, aid to SMEs must

observe market rules, Xia said. Structural changes are painful and resolving

risks means shrinking balance sheets and losses for some, he said.

     - Local government special-purpose bond issuance may rise this year given

declines in 2019 fiscal revenues following large-scale tax and fee cuts, which

have caused particular difficulties for local governments, Liu said. But

attention must be paid to how funds raised are used, and to the potential

returns of such investments, he said.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MC$$$$,MT$$$$,MGQ$$$]