China will push ahead with financial reforms that include interest rates and the yuan as it seeks to keep economic growth on an even keel, central bank chief Zhou Xiaochuan said on Friday.
The People’s Bank of China will maintain a prudent monetary policy and fine-tune when necessary, Zhou said.
China’s economy has slowed in the past months, prompting expectations the central bank could loosen economic policy, but Zhou emphasized the authorities’ intention to continue with financial reforms even in the face of the current challenges.
“We will forcefully push ahead financial reforms and innovations to promote cohesive development in the economy and the financial industry,” Zhou said, speaking at a financial forum in Shanghai.
The central bank will “stick to the reforms in interest rates, currency rate and cross-border use of yuan,” he added.
China will also expand the financing channels available to banks, allowing them to raise funds overseas and retain higher levels of profit, Shang Fulin, chair of the China Banking Regulatory Commission, said at the same forum.
The banking regulator is also studying the possibility of letting banks issue preferred shares, Shang said.
Chinese banks have been in the spotlight in the past year with investors worried that a slowing economy may increase losses from bad loans, especially after the banks loaned some 10.7 trillion yuan ($1.68 trillion) to China’s local governments following the 2008/09 financial crisis.
Slackening growth in exports, factory production and fixed asset investment have dragged on China’s economy this year.
Early economic indicators suggest growth did not pick up in June, raising doubts over whether China can meet its 2012 growth target of 7.5 percent, a level many thought the economy would comfortably exceed when it was announced in March.
Jia Kang, chief researcher at the finance ministry, said on Thursday that the economy should stabilise in the third quarter and that the government was confident it could meet its 7.5 percent growth target for the year.
The reform push led by the central bank and other financial watchdogs represents a change in approach by Beijing from the last crisis.
To offset the effects of the global downturn that began in 2008, China unleashed a wave of policy lending, infrastructure spending and other fiscal stimulus. It successfully preserved growth but exacerbated existing structural economic distortions, encouraging real estate and stock speculation and enabling local governments to incur the $1.68 trillion pile of debt.
This time around, as global markets sputter and domestic growth slows again, reformers led by Premier Wen Jiabao, Zhou Xiaochuan and China Securities Regulatory Commission (CSRC) chief Guo Shuqing have seized the opportunity to make deep changes to the way the Chinese economy works.
Underlying the sweeping changes is a desire to give financial markets more freedom to set the price of credit and assets, and allow capital to be allocated more efficiently – which analysts say is necessary if China is to sustain brisk economic growth.($1 = 6.3575 Chinese yuan)