Xu Zhong, head of the research department.....>

CHINA: Xu Zhong, head of the research department at the People's Bank of China,

wrote in a blog commentary published Sunday warning that the disorder in China's

financial sector in fact reflects problems in the real economy and the whole

financial system. Xu said the government's excessive intervention in the market

is a problem, adding China lacks a system relying on personal credit instead of

the current situation relying on collective credit. "Invisible" government

insurance on wealth management products still exists, Xu said, leading to the

overly favorable ratings for some companies. Financial institutions' staff

salaries, their status within the industry, and the economic tasks allocated to

them by the government, are all linked directly to their size, causing an excess

emphasis on the pursuit of size by financial institutions, Xu said. He also

stressed the existence of zombie companies was partly due to the continuing

financial support of financial institutions to try and hide bad loans. At the

same time local government and financial regulators are also trying to hide bad

loans because their revelation would reveal the lack of proper management and

regulatory oversight, Xu said.