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Repeats Story Initially Transmitted at 05:34 GMT Sep 21/01:34 EST Sep 21
--China Economy Faces Downturn Pressure Next Year: Advisor
--Current Loose Monetary/Fiscal Policy May Worsen Debt Bubbles: Zhu
     BEIJING (MNI) - China's ongoing trade war with the U.S. is likely to
disrupt the pace of domestic economic reform, an advisor to the authorities told
MNI in an interview.
     "Over the past year or more, there have been signals that policymakers may
lift their obsession with growth to cope with issues accumulated during the
process of rapid development," Zhu Ning, professor at the People's Bank of China
School of Finance(PBCSF).
     "But I am worried the situation may be reversed under the cloud of the
trade war," Zhu said, noting many reforming policies have been slowed, suspended
or even cancelled in recent months.
     The deleveraging campaign has been softened in recent months, with a
loosening of both monetary and fiscal policies, Zhu noted. The enforcement of
new rules for the asset management industry, seen as a main driver of China's
debt bubble, has also been weakened. The launch of a long-awaited housing
property tax to slow a property bubble has also been delayed.
     To Zhu, a firm supporter of imposing property taxes to curb bubbles, they
are not good signs.
     "If the government does not change its growth model, fast growth will still
depend on debt and investment. If more and more debt turns 'invisible', they
would trigger systematic risks, particularly in a vulnerable financial system,"
Zhu worries.
     Now policymakers are stuck with a dilemma as the economy may suffer a
slowdown next year.
     "In the short term, we can meet growth targets through investment
stimulation, but it will worsen the debt problem and threaten long-term growth,"
Zhu said. "We must make a choice and cannot want both."
     But, Zhu said, as some stimulus measures have been taken, it may indicate
the 6.5% growth target is still what policymakers are hoping to achieve.
     Zhu also expresses concern that the current loosening policy of the
People's Bank of China will fuel speculative market moves, particularly
increasing leverage in the property sector.
     "Market sentiment is quite important, particularly in a system suffering
with high leverage and property bubbles," Zhu warned. "The central bank needs to
find a balance."
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |