By Divya Chowdhury and Aaron Saldanha
(Reuters) - China will broadly be able to maintain its current growth rate through 2020, Min Zhu, chairman of the National Institute of Financial Research at Tsinghua University, said on Monday.
Zhu, a former deputy governor of the People's Bank Of China (PBOC), told the Reuters Global Markets Forum that it was "very reasonable" for the world's second largest economy to grow at 6% annually, adding that local monetary policy will remain neutral this year due to concerns about high debt levels.
Progress on solving the bruising U.S.-China trade war in Phase 2 negotiations depends on the United States, Zhu said ahead of the annual meeting of the World Economic Forum (WEF) in the Swiss ski resort of Davos.
Below are excerpts of the interview:
Question (Q) - What is your outlook on China's economy and your GDP growth forecast in 2020?
Answer (A) - 2020 can be a good year. The economy is going to stabilize. The trade deal and technological innovations are all picking up, and will all support investments. 6% growth is very reasonable for China. At this stage China can maintain its growth level. Chinese monetary policy is to remain neutral as we have to be careful on leverage, which is high. Fiscal initiatives will also remain supportive.
Q: What sort of policy initiatives could we see in 2020 to make that happen?
A: Infrastructure investment is good in many cases; but China has already done a lot in that area. There is still room for investing in high speed railways and subways, which is a relatively new infrastructure being established in China.
Q: Do you feel the PBOC will continue to cut the loan prime rate (LPR) and required reserve ratio (RRR) despite quickening inflation?
A: I don't see a huge need in cutting interest rates. There is room in cutting RRR so monetary policy transmission can move smoothly, and liquidity will move into the real sector. Overall, they (PBOC) will maintain policy.
Q: What's your view on Chinese debt markets this year? Do you feel investor sentiment could be tepid in 2020 given instances like Tewoo Group in recent months?
A: Debt markets did very well last year; and given rate differentials between local and foreign markets, China rates are still higher. So, we saw good inflows into Chinese bond markets last year. I see an increase (this year) from the last year's level. The U.S. Federal Reserve is in cutting rate mode, and markets still expect the Fed to continue cutting this year, so the differential will remain (to China's advantage).
Q: What is your view on China's trade dispute with the U.S. and what do you think could happen after the Phase 1 deal?
A: They are trying to find the best way to make it work for both sides. Phase 1 is very much focused on trade and intellectual property protection. There is room to talk in Phase 2, more broadly on the issues of technology, declining number of Chinese students going to the U.S. and blacklisting of Chinese companies. There is a need to reduce those uncertainties and have clear boundaries.
I don't know when Phase 2 (could be signed), but the ball's in the United States' court. This is also a (U.S.) election year. But we hope talks will start. Talk is always good and better than no talk, even before the elections happen.
(This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Eikon platform. Sign up here to join GMF: https://refini.tv/2LbSKPl https://refini.tv/2LbSKPl)) )