* China aims for 7 pct growth in 2015, a quarter-century low
* Some policy advisers calling for more stimulus
* Others call for structural reforms for sustainable growth
* Concern that monetary stimulus fuelling speculative bubble
By Kevin Yao
BEIJING, April 17 (Reuters) - With China's economic growth heading for a quarter-century low, think-tanks and advisers to the government are polarising into those calling for more stimulus to arrest the slowdown and a rival camp emphasising structural reforms as the route to sustainable growth.
The debate among the think-tanks, which influence decision-making but do not wield direct power, is reflected in the ambivalent mood music coming from China's leaders, who accept the need to adapt to a "new normal" of slower but better quality growth, while fretting that a deeper downturn could fuel debt defaults, unemployment and social unrest.
To prevent growth from dipping below 7 percent, some economists are urging Beijing to step up policy support on top of the two interest rate cuts since November and a reduction in the level of deposits banks must hold in reserve.
"Employment is a lagging indicator; if the slowdown persists, it will definitely affect employment," said a senior economist at a well-connected think-tank who declined to be named.
"We still need to cut interest rates, bank reserve ratios and taxes, (and) the exchange rate should become more flexible."
Employment is for now holding up despite signs of rising job losses in some regions, including the rust-belt northeastern provinces, which Premier Li Keqiang visited last week, pledging to "stand up to" the downward pressure on the economy.
"The real downward pressure may be even bigger than the headline figures," said an economist who advises the government.
"The biggest difficulty is not slowdown itself. Many debt-laden firms cannot repay bank loans, and we must boost the money supply as quickly as possible to reduce real interest rates."
The economist called for deeper cuts to banks' reserve requirement ratio (RRR) this year, probably by 3-4 percentage points from the current 19.5 percent, and some yuan depreciation to help exporters.
Despite the rate cuts and lower RRR, falling inflation has kept real borrowing costs high.
Lu Zhengwei, chief economist at the Industrial Bank, has also called for yuan depreciation to support growth, but China's leaders are concerned it would encourage a further outflow of capital. Premier Li has ruled it out, even as he conceded that the 2015 growth target won't be easy.
"They will have to cut interest rates and RRR and boost investment, which may only provide a short relief for the economy but cannot change the downward trend," said Lu.
BOOST OR BUBBLE?
But other advisers say Beijing should tolerate lower growth, chastened by the experience of its last heavy stimulus programme after the global financial crisis, which saddled state-owned enterprises and local authorities with a mountain of debt, run up sometimes for projects of doubtful value.
These advisers argue that reforms to make the economy more efficient and responsive to market signals, which in the short term means letting weak companies fail and unproductive jobs evaporate, will produce better quality growth, while excessive stimulus could promote dangerous asset bubbles.
"They (leaders) are worried about the economy, but policy steps have limited effectiveness due to excessive investment in the past," said an economist with a think-tank affiliated to the National Development Reform Commission, the top planning agency.
Cai Fang, vice head of the Chinese Academy of Social Sciences (CASS), a government think-tank, also wants more emphasis on reforms. He advocates relaxing rules on family planning and the household registration system, which ties people's access to services to their residential status.
"We have used a variety of approaches to appropriately stimulate economic growth, but they are apparently not very useful," he told a high-level conference last month.
"That will make policymakers realise that they cannot use traditional means to boost economic growth potentials and must look to reforms to unleash dividends."
Those dividends should include government's long-term goal of reducing the burden of debt in the economy, while excessive stimulus risks further inflating speculative bubbles.
"If we pump out more money through monetary policy, it will spur further crazy rises in the stock market," said another CASS economist. "The government is riding a tiger." (Editing by Will Waterman)
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