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

Zhou Xiaochuan tells forum ‘protection leads to laziness’ as he pushes for pro-market reform

PUBLISHED : Tuesday, 20 June, 2017, 10:44pm
UPDATED : Tuesday, 20 June, 2017, 11:05pm

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.

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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.

Meanwhile, financial institutions are still subject to government intervention, and soft financing and corruption are rife.

In two recent cases, the China Minsheng Bank chairman said it lent US$100 million to Anbang ­Insurance, whose chairman Wu Xiaohui is being investigated. And three executives at fugitive tycoon Guo Wengui’s flagship firm pleaded guilty to fraud, telling a court Guo ordered them to fake documents to get a 3.2 billion yuan (US$470 million or HK$3.66 billion) loan from the Agricultural Bank of China.

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Beijing was taking baby steps to open its stock and bond markets, including a bond market connect with Hong Kong, but had shown little intention of opening the financial sector to foreign firms, said Cliff Sheng of management consultant Oliver Wyman. “The window has already passed” for foreign financial firms to thrive on the mainland, he said.

Gary Liu, president of the China Financial Reform Institute, said Zhou, whose term ends next year, was using one of his last public speeches to push for pro-market reform as progress had stalled for the past five years.