REPEAT: China Growth Policy Could Weigh On Yuan: Ex-Offcl

Repeats Story Initially Transmitted at 04:03 GMT May 29/00:03 EST May 29

     BEIJING (MNI) - China could further ease monetary policy as economic

headwinds grow, a move contrary to keeping the yuan below the ley 7 level

against the U.S. dollar, Yu Yongding, a former member of the People's Bank of

China monetary policy committee, told the Financial Street Forum annual

conference.

     "We may further ease monetary policy to underpin economic growth when we

face domestic and external pressures, then the problem will be if we would allow

the currency to break the 7 level," said Yu, now a senior research fellow at the

Chinese Academy of Social Sciences.

     Yu said the appreciation of the yuan in the early part of the year has hurt

China's exports, a problem that will get worse if the U.S. continues to increase

tariff levels.

     --INGENUITY

     He noted that the PBOC has been intervening in a more "ingenious" ways

rather than using reserves as in 2015 and 2016, with the issuance PBOC bills in

the offshore market as an example.

     "It (PBOC bills issuance) is a good method, but it has tightened yuan

liquidity ... which will drag up interest rates," Yu said. "It is unsustainable

unless trade conditions improve or our economy gets better," he continued.

     China will need large scale stimulus when the domestic and external

situation deteriorates, Yu predicted. But he predicted the side effect of the

yuan possibly breaking 7 might spook the market, so the PBOC should allow the

currency to move around the 7 now, allowing financial markets get used to it.

     Yu also said it was reasonable for China to boost capital controls to

prevent a disorderly depreciation of the yuan, curbing capital outflows and

balancing international payments, Yu said. "We have done really good work on

this," he noted.

     But he warned some aspects of capital controls may have been overdone,

suggesting the yuan needed to be more flexible.

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