China central bank governor says neutral monetary policy conducive to supply-side reform

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China is carrying out a prudent and neutral monetary policy, said Zhou Xiaochuan, governor of the People’s Bank of China (PBC). He and three members of the central bank’s management team met the media on the sidelines of the fifth session of the 12th National People’s Congress in Beijing on Friday.

Four members of Chinese central bank's management team attend a press conference on China's financial reform and development in Beijing, on March 10, 2017. /Xinhua Photo

They discussed China’s financial reform and development, and touched upon issues such as China’s new monetary policy, China’s high corporate debt levels, exchange rate of Chinese renminbi (RMB), opening-up of the country’s bond market and tougher regulation of third-party payment platforms.

Monetary policy

A neutrally-inclined policy will help China’s supply-side structural reform, Zhou noted.

He said too much liquidity will be harmful for the economy due to possible high inflation and runaway asset prices.

Corporate debt

Yi Gang, Deputy Governor of the PBC /China.com.cn Photo

China’s overall leverage level is not very high, but its corporate debt levels are excessively high, said Yi Gang, Deputy Governor of the PBC.

China’s corporate debt soared to 169 percent of GDP as of March 2016, much higher than the global average standard at 95.5 percent.

The deputy governor pointed out measures like encouraging direct financing should be taken to keep enterprises with high leverage under control.

He said China will work to decelerate the rising of debt.

Foreign exchange rate

The RMB will automatically stabilize in 2017 thanks to China's economy, supply-side reform progress and increasing global confidence in its growth prospects, said Zhou.

The governor attributed RMB exchange rate fluctuations in the second half of 2016 to outbound investment and forex spending.

Zhou also noted a China-US interest rate gap will not cause notable capital flows in the medium and long term, in spite of speculative activities in the short term.

Bond market

Pan Gongsheng, Deputy Governor of the PBC and Administrator of State Administration of Foreign Exchange /China.com.cn Photo

China has large potential to open up its bond market to foreign investors, said Pan Gongsheng, Deputy Governor of the PBC and Administrator of State Administration of Foreign Exchange.

Pan revealed some 400 overseas institutional investors hold bonds worth over 800 billion yuan (115.7 billion US dollars) in China’s bond market.

It marks an increase of more than 100 in investor numbers and about 150 billion yuan (21.7 billion US dollars) in investment volume from a year ago.

Zhou also stated China’s bond market will not be included deliberately in global indexes, despite its incorporation into relevant indexes by Bloomberg and Citibank.

Third-party payment

Fan Yifei, Deputy Governor of the PBC /China.com.cn Photo

Fan Yifei, Deputy Governor of the PBC answered questions on the third-party payment issue. He said China will strengthen regulation of third-party payment platforms.

China’s third-party payment industry has developed rapidly. Its total transaction reached 120 trillion yuan (17.4 trillion US dollars) in 2016, an increase from 18 trillion yuan (2.6 trillion US dollars) in 2013, according to Fan.

The rapid growth has coincided with serious problems such as surplus supply in the market, lack of protection of customer privacy and misuse of customer funds, said Fan.

The deputy governor revealed 239 third-party payment platforms have been found running business without certificate as of this January.

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