Beijing advised to be more hands-off

PUBLISHED : Tuesday, 03 July, 2007, 12:00am
UPDATED : Tuesday, 03 July, 2007, 12:00am

Beijing should refrain from excessive direct intervention the country's economy because such administrative measures could cause uncertainty and instability for the banking sector's long-term development, a prominent economist said over the weekend.

Wu Jinglian, an economist with the Development Research Centre of the State Council, a government think-tank, told a business forum in Shanghai that government intervention including administrative moves to ease price increases on real estate and in food markets had a negative impact on the economy.

'[Government intervention] has prevented resources being effectively relocated to places where those resources were supposed to be,' Mr Wu was quoted as saying by Caijing magazine, a sponsor of the forum.

Mr Wu, known as 'Market Wu' for his advocacy of a market-driven approach toward resource allocation, said Beijing had overly micromanaged domestic banks on how their funds should be used.

Foreign banks and some listed commercial banks had started offering various types of financial services, but the government still discouraged state-owned lenders from following suit on concerns of risk exposure.

'The government should try to minimise risks by tightening supervision, not by shutting the door,' Mr Wu said.

He said the power held by the banking supervisory body was 'far beyond rational' and as a result the banking regulator was sidelined by market issues such the amount of loans banks should make.

China's macroeconomic policies in the past few years had caused issues such as economic overheating and mounting pressure on inflation which exposed banks to potential dangers in risk management, he added.