MNI INTERVIEW:PBOC Official Calls For Credit Guarantee Support

--Increased Govt Aid For Finance Guarantee Firms To Cut Lending Costs: Zhou

     BEIJING (MNI) - China should increase support for finance guarantee

companies, including by helping them to recapitalise, in order to cut the risk

premium on loans to smaller private businesses and boost the economy, a People's

Bank of China official told MNI in an interview.

     "Due to the previous economic slowdown and rising risks, many private

guarantee companies have collapsed, so new companies backed by the government

are needed," said Zhou Xiaoqiang, a delegate at the 13th National People's

Congress and the president of PBOC's Chengdu branch.

     People's Bank of China governor Yi Gang pledged last weekend to reduce risk

premiums in a bid to push real interest rates lower to facilitate credit

expansion.

     While some economists have expressed concern that additional credit

expansion could fuel private sector indebtedness, Zhou said monetary and credit

policies will be used to correct imbalances.

     --PRUDENT POLICY

     "Monetary policy will remain prudent and neutral in overall supply, while

we also emphasize structure guidance, such as relending for small business, and

targeted cuts in the deposit reserve ratio," he stressed.

     The PBOC is also using macro-prudential assessments to monitor banks'

lending.

     Zhou noted other ways to reduce risk premia on loans, including improved

disclosure of information by smaller companies and a higher tolerance of

non-performing loans. On Wednesday, the China Banking and Insurance Regulatory

Commission told banks to tolerate an NPL ratio for loans to small businesses of

as high as 3% of total loans.

     Zhou agreed that the central bank would continue with market-orientated

rate reform, merging money market operation rates and policy rates, although he

acknowledged that the benchmark rate would remain an important reference point.

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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