REPEAT: MNI: Trade War Could See China Slow Reform: Advisor

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.

     --POLICY REVERSAL

     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.

     --POLICY DILEMMA

     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: les.commons@marketnews.com