China vows financial reform
Opening up leads to progress and being closed points to backwardness, new central bank chief Yi tells forum
China will steadily reform and further open its financial sector, while putting “equal emphasis” on preventing risks through regulation and supervision.
China will steadily reform and open its financial sector wider while putting “equal emphasis” on preventing risks through regulation and supervision, the new central bank governor said on Sunday.
In his first public speech since becoming central bank chief last week, Yi Gang told the China Development Forum in Beijing that opening up leads to progress, while closure points to backwardness.
“History has proved that areas that are more open are more competitive, and areas that are less open are less competitive and see risks accumulating [as a result],” Yi said.
US-educated Yi, 60, a protege of respected predecessor Zhou Xiaochuan, is widely seen as a safe pair of hands, ensuring policy continuity as China persists with its crackdown on risks and a debt build-up.
While Yi is not regarded a political heavyweight like his former boss Zhou, he is expected to play a supporting but important role on China’s new economic team helmed by Vice-Premier Liu He.
The team includes the recently anointed banking and insurance regulatory chief Guo Shuqing, who is said to become the central bank’s Communist Party chief soon. Yi’s speech put much emphasis on risk control and was in line with the government’s narrative that China’s opening up will proceed but at a pace it sets.
In a recent meeting with former US Treasury Secretary Henry Paulson, Commerce Minister Zhong Shan said China’s opening would not be pressured by any “big stick” from other countries.
“We will put equal emphasis on the opening up of the financial sector and prevention of financial risks,” Yi said.
“The opening up of the financial sector must be accompanied by the development of financial regulation.”
President Xi Jinping vowed in October that China would deepen economic and financial reforms and further open its markets to foreign investors.
A month later, China said it would lift the ceiling on foreign equity ownership in joint venture firms involved in the futures, securities and funds markets to 51% from 49%, though no timetable was set.
China also said ownership limits in many financial sectors would be dismantled after three years. But raising ownership limits did not mean there would be no supervision, Yi said.
He added that both domestic and foreign firms would be treated equally.
The sector’s opening up would proceed in coordination with reforms in China’s foreign exchange rate mechanism and capital account convertibility, he said.
Yi said China would open its bond market further and the second phase of the China International Payments System, a cross-border yuan settlement system, would be rolled out soon.
The system is expected to allow global firms to settle payments with Chinese businesses more efficiently, replacing a patchwork of networks such as clearing banks globally.
“We have three major tasks for the financial system. First, implement prudent monetary policy. Second, push forward financial reforms and opening up. Third, win the battle against financial risks,” Yi said.
China’s financial risks were reflected in its high leverage, Yi said, highlighting indebted state-owned enterprises, hidden local government debt and the relatively rapid growth in household leverage.
A few “rampantly expanding” financial conglomerates also posed risks to the country’s financial system, Yi said, without naming any.
While safeguarding the bottom line for the prevention of financial risks, China will step up credit support for weak links in the economy, including small firms and the rural sector.
China’s economic performance in early 2018 had shown good momentum extending from 2017, and the central bank would continue to implement prudent and neutral monetary policy, he said.
The People’s Bank of China (PBOC) has kept liquidity at a reasonable level and has stabilised leverage.
“Monetary policy will not be too tight or too loose,” Yi said, adding that growth in M2 money supply and total social financing, a broad measure of credit, will be at a reasonable pace in 2018.
The government has not set a target for M2 growth in 2018.
The central bank governor said he expected consumer inflation pressures to be mild in 2018 and that producer price increases would slow.
The Chinese yuan would be kept basically stable, Yi also said, reiterating PBOC’s longstanding stance.