PBOC chief urges market economics, regulation balance

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China's central bank governor has called for the market to play a more “decisive role” in allocating financial resources, but also stressed the importance of stronger regulation and Communist Party leadership in guiding financial reform.

“China should develop equity financing in an active and orderly manner, and steadily increase the share of direct financing," Zhou Xiaochuan, head of the People’s Bank of China (PBOC), wrote in an article quoted by Xinhua on Saturday.

"The channels of equity financing should be expanded, the mechanism of stock offering should be overhauled, while intervention in market prices and indices should be reduced," he went on.

Zhou Xiaochuan, governor of the People’s Bank of China /CGTN Photo

Zhou warned of a “Minsky moment”, referring to a sudden major collapse of asset values sparked by debt or currency pressures. He urged people to avoid a sharp economy slowdown.

Chinese President Xi Jinping said that as the Chinese economy transitions from a phase of rapid growth to a stage of steadier development, the national growth models need to be adjusted and new drivers of growth fostered.

"It is imperative that we develop a modernized economy," Xi stressed, calling it a strategic goal for China's development.

China's GDP holds steady from a 6.9-percent growth in the first half despite a slightly slower 6.8-percent increase in the third quarter. /VCG Photo

Although International Monetary Fund (IMF) analysts have recently warned Beijing that China is over-indebted, Zhou said in his article that he believed China should “actively develop equity financing, and steadily increase the proportion of direct finance.”

Zhou called for further financial deregulation, saying China will relax management of its forex market, promote yuan internationalization and broaden market access by foreign financial institutions.

He also called for deepening reform of the yuan's exchange rate formation mechanism, lessening forex controls, pushing the yuan to become an international currency, and steadily realizing convertibility under the capital account.

"On the precondition of ensuring financial security, restrictions on foreign financial institutions' market access should be relaxed," Zhou wrote.

VCG Photo

The governor also reiterated that financial risks should be contained, stressing that investment from non-financial firms in financial institutions must be strictly restricted and regulated.

In a report released earlier this month, the IMF raised its forecast for China‘s growth for the fourth time this year, predicting China's economy would grow 6.8 percent this year and 6.5 percent next year, both 0.1 percentage points higher than previous forecasts.

China's GDP expanded 6.9 percent in the first three quarters compared to the same period last year, holding steady from a 6.9-percent growth in the first half despite a slightly slower 6.8 percent increase in the third quarter.

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