Interest rate rises alone will not solve the mainland's serious problem of excessive liquidity and more investment channels are necessary, Bank of China vice-president Zhu Min said on the sidelines of an academic forum in Shanghai.
The excessive liquidity was mainly caused by people switching from long-term to short-term deposits and the central government must adopt measures based on this change, Mr Zhu said at the Shanghai Forum held by Fudan University yesterday.
'It is important to provide more investment products with higher yields and provide citizens with more pension and medical insurance coverage,' Mr Zhu said.
'It is not a bad thing for people to draw out money from banks for investment. But it is necessary to give them instructions and encourage them to diversify their portfolios.'
Mr Zhu said the size of the banking sector had doubled over the past five years due to mainland citizens' preference for depositing money, despite the fact that mainland interest rates are significantly lower than those of the United States or Europe.
He said bank deposits on the mainland increased by 16 to 18 per cent annually over the past several years and 11 trillion yuan sat idle in domestic banks, about half of the country's gross domestic output.