BEIJING, March 12 China has ample room to
tweak policy to support credit growth in the face of volatile
foreign capital flows that will inevitably see market forces
play a greater role in determining the value of the yuan,
central bank chief Zhou Xiaochuan said on Monday.
Following are highlights from the People's Bank of China's
news conference on the sidelines of the annual parliament
meeting. Vice governors Hu Xiaolian, Liu Shiyu and Yi Gang, who
heads the State Administration of Foreign Exchange (SAFE), also
The PBOC issued a statement on key policy goals for 2012.
For a full story, see
MONETARY POLICY (PBOC statement)
"The PBOC will continue to implement a prudent monetary
policy, maintain policy consistency and stability, make
macroeconomic policies better targeted, more flexible and
pre-emptive, strike a balance between maintaining sustainable
and relatively fast growth, adjusting economic structures and
managing inflationary expectations."
"The PBOC will, in light of economic and financial
situations, adopt a mix of policy instruments including interest
rates, exchange rate, open market operations and reserve
requirement ratio, properly use the macro-prudential policy
framework, and balance money supply and demand, in order to
maintain reasonable growth of the all-system financing
REQUIRED RESERVE RATIO (Zhou Xiaochuan)
"Now banks' reserve requirement ratio is just over 20
percent. We had low RRR, which was at 6 percent in the late
"There is a lot of room for RRR cuts. But we need to look at
whether it's necessary... and look at market liquidity. We
cannot raise or cut RRR at will when we think there is room. We
need to look at the liquidity condition, which is related to FX
purchases and our international balance of payments."
"The PBOC has always paid attention to price tools. It
raised the benchmark interest rate five times from the fourth
quarter of 2010 to the third quarter 2011. But when we use the
tool, we need to consider some constrains. One consideration is
the impact on capital flows."
INTEREST RATE REFORMS (Hu Xiaolian)
"Interest rate reforms have been proceeding in an orderly
manner. We will continue to push forward the process of interest
rate reforms during the 12th five-year plan (2011-15)."
"But we have to consider some conditions. The main condition
is corporate governance and financial restraints of financial
institutions. That will ensure a fair market competition
environment once interest rates are liberalised. Also, we must
protect depositors as there may be failures once interest rates
are freed up."
YUAN LEVEL (Zhou Xiaochuan)
"The closer the yuan is to an equilibrium, the bigger role
market forces will play in the yuan exchange rate. We will allow
and encourage market forces to play a bigger role, and the
central bank's participation and intervention in the market will
decrease in an orderly manner."
"The yuan exchange rate movement is not against any single
currency, it floats against the dollar, but also the euro and
yen. Therefore, if other major currencies are strengthening or
weakening, then the yuan exchange rate floating mechanism will
be more flexible to cope with changes in other currencies."
"Of course, the yuan exchange rate movement is not solely
decided by international markets, it is also largely up to our
international payment conditions as well as demand and supply of
forex market participants.
"But whether it is okay to say that the yuan appreciation
process is over? I think it's mainly up to market demand and
supply, and it won't be that simple."
"Whether there will be a clear line, like in one day the
process is over, I don't think the issue will be that simple."
BANK CREDIT FOR GOVERNMENT PROJECTS (Zhou Xiaochuan)
"We should treat funding shortages of projects under the
government's 4 trillion yuan stimulus package differently.
According the National Development and Reform Commission, there
should be sufficient funding for key projects. Of course, there
are some projects that may face capital shortages."
"If we guarantee funding for all the projects, the monetary
policy's goal of stabilising prices will not be reached. I'm not
surprised to see some projects are facing capital shortfalls."
"It's a bit of an exaggeration to say banks are making 'huge
profits'. The banking system still faces the problem of capital
shortages this year. Bank profits have indeed outperformed other
industries, but we need to see that there are many factors
behind such profits -- one of them is the cyclical factor."
GLOBAL MACRO RISKS (Zhou Xiaochuan)
"The biggest uncertainty in the international economic
situation, as we all know, is the economic recovery process,
especially the European economy and financial market development
relating to the euro sovereign debt crisis."
CAPITAL ACCOUNT CONVERTIBLITY (PBOC statement)
"Steady progress will be made to promote capital account
convertibility. Continued efforts will be made to manage China's
reserve assets with new innovations."
"The PBOC will steadily advance the market-based interest
rate and the yuan exchange rate regime reforms. It will also
expand the product variety and coverage of cross-border yuan
businesses in a steady manner to meet market demand. Efforts
will be made to improve yuan settlement business for
cross-border trade and investment transactions.
FX RESERVE DIVERSIFICATION (Yi Gang)
"In general, we support the measures of the EU, ECB and IMF
in solving the euro debt problem, and China has made its own
great efforts as well.
"As you may know, China always sticks to diversification in
terms of currency and asset portfolio and that principle has not
changed since the euro debt crisis. We have continued our
investments in Europe and European markets."
"We don't put all eggs in one basket".
"Our portfolio in euro zone and Europe has achieved the goal
of maintaining the value and increasing the value. In other
words, the returns are higher than local (inflation rates)."
"We are still confident in Europe in the future and China is
a long-term and responsible investor in managing its foreign
exchange reserves. In the future, we will always be an investor
in Europe and European markets."
Separately, Yi said it made sense for China and Japan to
work closely together on financial market matters.
"China and Japan are the No.2 and No.3 economies in the
world, and we are neighbours as well, so it's very important for
financial cooperation between the two countries, especially over
the development of bond markets."
"We welcome Japan to invest in the Chinese bond markets and
we will also make investments in the Japanese government bond
(JGB) market or other fixed-income products."
"For a period of time when the Japanese side is very worried
about excessive investments and yen appreciation, then we can
buy fewer (Japanese government bonds). But if both sides think
the times are okay... then we can buy more."