MNI INTERVIEW: PBOC Should Trust Markets More: Former Advsor

--Pressuring Banks to Lend To SMEs Is Ineffective: Former MPC Member Huang

     BEIJING (MNI) - The People's Bank of China (PBOC) should avoid excess

financial intervention and allow a greater role for the market in determining

the flow of funds to the economy, a former member of the PBOC's monetary policy

committee said in an interview.

     Huang Yiping pointed to both a crackdown on special funding vehicles and

shadow banking which has obstructed financing channels for local government

without providing effective sustainable alternatives, and to a drive by the PBOC

to boost lending at lower rates to small- and medium-sized enterprises as

examples of intervention which could prove counter-productive.

     Huang, lead author of this year's Jingshan Report, published Saturday by

the China Finance 40 Forum, told MNI in an interview that the authorities have

impinged on too many of the market's functions, stalling the orderly allocation

of assets and putting a brake on growth.

     Given the early signs of economic slowdown and a threat to exports from the

continuing trade spat with the U.S., the PBOC has had to shift its priority from

preventing risks to a "structural loosening," Huang said Saturday on the

sidelines of a conference hosted by CF40.

     But pushing banks to lend to risky SMEs is not the answer.

     "The problem should be dealt with in market-based ways, as banks are

reluctant to lend considering the losses they have to bear, especially given the

loan costs are very low," Huang said.

     The central bank must avoid flooding the system with cash, looking to

return to a tightening bias when the economy steadies, returning the focus to

economic rebalancing, he said.

--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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MT$$$$,MX$$$$,MGQ$$$]