MNI 5 THINGS: China PBOC Zhou Calls for A Bold Opening Up

--PBOC Gov, Deps Address Press On National People's Congress Sidelines

     BEIJING (MNI) - The PBOC governor Zhou Xiaochuan told reporters Friday that

the central bank will further push forward financial reform and an opening up,

but the yuan globalization will be a long term process with no new main policy.

The PBOC will play a bigger role in the process of financial regulatory

structure,he said. Deputy governors Yi Gang and Pan Gongsheng co-hosted the

press conference. 

     - The PBOC soothed markets concern that corporate funding costs would rise

and even drag on economic performance when the influence of global withdrawal

from quantitative easing passes on to China. "The withdrawal of QE is a good

thing, which means the quantitative expansion and low interest rates era has

likely ended. As part of global economy, the impact to China has been

estimated," Zhou said. But the efficiency of capital usage will increase and

costs could also fall in a momentum of the capital reduction and prices rise,

Zhou noted, stressing "monetary and forex policies will make reaction

accordingly." Deputy-governor Yi said the actual interest rate is stable in line

with economic performance; "The money supply is balanced in China," Yi noted.

     - China will adjust interest rates according to the domestic economic and

financial situation, not following the pace of the Federal Reserve, Yi said. The

prudent and neutral monetary policy aims to create a stable external environment

for risk prevention and financial reform. "Monetary policy keeps the easing or

tightening only as appropriate, which means liquidity will fully consider the

stability of market rates, level of excess reserve and all other indexes," Yi

noted. Policymakers will shift the focus to inflation from the changes of money

supply, Zhou argued.

     - Zhou advised that China should be "bolder" in opening up its financial

market. China upped restrictions on cross-border capital flows in 2016, which

was seen as a slowing or even retrogression of the yuan's globalization. Zhou

said the main policies on yuan globalization have all been introduced. It is a

long-term process to cultivate market participants willingness to conduct

settlement and asset pricing in yuan, Zhou said. "China will realize capital

account convertibility at a steady and gradual pace," Zhou noted. Yi added that

risks have to been controlled during the process of opening up the capital

account. "The regulatory capacity should match the level of opening up, " Yi

said.

     - Foreign exchange reserves will remain stable as the yuan remains stable

with two-way movement and the economy retains a good momentum, Pan Gongsheng

said. Zhou attributed February's decrease in foreign exchange holdings to the

value effect and international asset prices changes. H suggested forex reserves

could be valued by the currencies basket of special drawing rights compiled by

International Monetary Fund.

     - The overall debt level has been stable and China has entered a stage of

stabilizing and gradually lowering its leverage levels, Zhou said. The PBOC,

jointly with other regulators, has managed to curb the shadow banking sector.

The governor warned last year on China's debt risk using the expression of

"Minsky Moment", but  he now seems more confident with the deleveraging process.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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