SHOWS: HONG KONG, CHINA (JANUARY 3, 2012) (REUTERS - ACCESS ALL)

LOUIS KUIJS, CHIEF CHINA ECONOMIST, RBS

1. REPORTER OFF CAMERA SAYING:

'The PBOC has issued rules allowing companies in Qianhai to borrow yuan from banks in Hong Kong. How will that support China opening up its capital account as well as internationalizing its currency?'

2. LOUIS KUIJS, SAYING:

'I think this initiative as well as some other steps that have recently been announced are all adding up to an approach to financial sector opening and financial sector reform that remains on-track to meet China's government's long-term ambitions of opening up the financial sector, of opening up the capital account, of making the exchange rate regime more flexible. And also of changing monetary policy to make monetary policy more market-friendly. I would add though that this is a long-term process. It's a long-term objective. And in the meantime, policymaking will remain very pragmatic, very step-by-step and will continue to be very much looking at the real economy aspect of policymaking. And that means, in my view, that we should not expect a very rapid breakthrough in, for instance, the capital market opening. I do not expect a very rapid capital market opening or a very rapid move to exchange rate flexibility.'

3. REPORTER OFF CAMERA SAYING:

'2012 ended with a relatively rosy picture of recovery in China's economy. What's your 2013 outlook?'

4. LOUIS KUIJS, SAYING:

'Indeed. We are entering 2013 with quite decent growth momentum and that is very helpful in putting a floor on growth in 2013. Also, the domestic demand growth drivers in China remain still quite well in place. And that means that even with a policy stance that is not extremely expansionary, China should still be able to get growth of something somewhere between 7.5 and 8.5% growth in our outlook. And that means that China's macro policy does not necessarily have to be extremely supportive, extremely expansionary in order to meet those growth objectives. When we look at little bit more of the details of macro policy, we expect to see a continued supportive stance of monetary policy. We're also getting news that fiscal policy would like to be quite constructive, quite supportive to growth, with plans on increasing the fiscal deficit. But on both fiscal policy and monetary policy, we also hear concerns about financial risks on the monetary front. And also in the fiscal area, a very strong commitment not to raise the deficit too much. And these are all aspects of a policy stance in Beijing that would like to be supportive. But that does not want to take risks with regard to macroeconomic or financial stability. And therefore I do not expect the macro policy stance to become too expansionary.'

5. REPORTER OFF CAMERA SAYING:

'What will be the key risks for China in the coming year?'

6. LOUIS KUIJS, SAYING:

'I think the major risks in China are twofold. On the external front, we still think that unpleasant surprises coming either from Europe or the U.S. are still probably the largest risk factor for China's growth story. Domestically I would think that this balance that policymakers are trying to achieve between being helpful to growth but containing financial risks, I think that is going to be a much-discussed theme in economic policymaking this year. Because we are starting to move closer to the limits in China of how much you can leverage up the economy. And how much credit growth can there be. And so I think these financial risks and how they affect the macro policy stance are going to be a major part of the story in China and therefore also a major risk factor.'