Widen financial sector to stave off crisis, China’s central bank chief says

China’s long-serving central bank governor Zhou Xiaochuan says the country must open its financial sector wider to foreign competition if it is to avert a crisis.

Zhou, 69, who took the helm at the People’s Bank of China back in 2002, made the remarks at a time when Beijing has made financial risk control its top priority.

“If we want to avoid a financial crisis, we must ensure the health of our financial institutions and we should not tolerate high leverage, insufficient capital or high non-performing loans,” Zhou told the Lujiazui Forum, an annual gathering of regulators, bankers and academics, in Shanghai on Tuesday. “Protection leads to laziness ... and rent-seeking.”

He said it was wrong to shelter the financial system from open market competition as it would lead to “unhealthy and unstable” institutions. That was a lesson to be learnt from the Asian financial crisis in the late 1990s, he added.

Zhou has been a key architect of financial liberalisation on the mainland in the past 15 years. Yet although he has freed up interest rates and promoted use of the yuan abroad, the financial market remains largely closed. Sixteen years after China joined the World Trade Organisation, promising to open its financial sector, foreign banks account for about 2 per cent of the mainland market.