MW: China central banker wants tight financial regulation
By MarketWatch
HONG KONG (MarketWatch) -- China's chief central banker said the nation needs to keep tight control over its financial system, including making sure banks monitor their balance sheets after last year's lending spree, according to published comments Tuesday.
In an interview with state-run China Finance magazine, People's Bank of China Gov. Zhou Xiaochuan cited credit risks and overcapacity in some industries as challenges for the Chinese economy.
He said that rather than easing regulation in China, authorities need to continue a hands-on "protect and control" policy.
Similarly, the PBOC needs to use all the tools at its disposal, Zhou said.
"In fact, China should have more monetary tools than other countries. For example, adjusting [banks'] reserve requirements -- the international community believes reserve requirement ratio moves should be abandoned, that they are ineffective. But considering our nation's situation ... we [must] still emphasize the use of reserve requirements," he said.
He said many of China's financial markets -- such as the property market -- were still not mature, and this required more communication between the central bank and the public.
Soaring property prices in parts of China have drawn the attention of the nation's top officials. Last week, Chinese Premier Wen Jiabao said Beijing would take steps to stop the sharp rise in real estate values. See full story on Chinese premier's comments.
Societe Generale analysts said Zhou's comments were in line with recent warnings from mainland Chinese policy makers that new lending to facilitate industrial capacity or redundant infrastructure could undermine the quality of banks' existing loans.
"We are clearly entering the first phase of this three-stage exit scenario. [However], overall monetary conditions will remain very supportive of growth till at least the second half," wrote SocGen's Asia Pacific Economist Glenn Maguire in a research note Tuesday.
The next step, he said, could see the PBOC lift the ratio of reserves banks must set aside against loans, and be followed by interest rate hikes, most likely in 2011.
