No big economic moves expected from conference
By Feng Jianmin |
January 7, 2012, Saturday
|
Print Edition
Print Edition
MARKET-ORIENTED reforms on currency exchange and interest rates are projected to be the key topics of discussion during the two-day National Financial Work Conference that wraps up today.
But economists said they were not expecting drastic reforms at a time when policy stability and continuity prioritize policy-makers' agenda. They said that incremental measures may follow the conference to improve risk-control measures and the bond market.
"Market-oriented reforms will likely top the country's unfinished agenda, given an efficient allocation of financial resources is becoming increasingly vital to the economy," Citibank wrote in a note.
No solid steps
Though the discussion of interest rate liberalization has been put forward by the central bank for several years, no solid steps have been taken due to immature domestic financial markets and regulatory systems. Some economists also hold that liberalization will not occur until the government's economic policies and measures comply with market rules.
"It would be a positive surprise if specific steps are approved in the direction of liberalizing interest rates," the note said.
Meanwhile, the yuan's exchange rate has been allowed to float within a broader range since 2005, when its peg against the US dollar was lifted.
In the intervening seven years, the yuan has gained 33 percent against the greenback and is considered to have entered a balanced level as China's trade surplus has been shrinking.
"The surplus may be 1.6 percent of China's gross domestic product in the fourth quarter of 2011, suggesting a balanced level of the exchange rate," the Fudan University's Institute of Financial Studies wrote in a report on Thursday.
The report said maintaining a generally stable exchange rate of the yuan should be the target of policy-makers for the middle to long term, adding that the yuan may strengthen 2 to 3 percent against the US dollar in 2012.
The Citibank note said that no dramatic progress on the proposed interest and exchange rates reforms are likely in the short term, and with external headwinds from international markets and uncertainties in the domestic economy, efforts will be put more toward risk control and management.
Economists think that China will try to boost its bond market in a bid to foster direct financing amid a weak stock market and the need to keep monetary policy prudent.
"Securitization of bank loans may be discussed with the aim of reducing the bank recapitalization burden on the stock market," the Citibank note said. "This will also be beneficial for a healthy development of the bond and stock markets."
Lu Zhengwei, chief economist of the Industrial Bank, said that banks' ability to give loans will still be limited by tight risk-management measures even after cuts in reserve requirements, and allowing more companies and banks to issue bonds will ease the liquidity strain.
"That will provide a hedge to the cooling economy," Lu said.
But economists said they were not expecting drastic reforms at a time when policy stability and continuity prioritize policy-makers' agenda. They said that incremental measures may follow the conference to improve risk-control measures and the bond market.
"Market-oriented reforms will likely top the country's unfinished agenda, given an efficient allocation of financial resources is becoming increasingly vital to the economy," Citibank wrote in a note.
No solid steps
Though the discussion of interest rate liberalization has been put forward by the central bank for several years, no solid steps have been taken due to immature domestic financial markets and regulatory systems. Some economists also hold that liberalization will not occur until the government's economic policies and measures comply with market rules.
"It would be a positive surprise if specific steps are approved in the direction of liberalizing interest rates," the note said.
Meanwhile, the yuan's exchange rate has been allowed to float within a broader range since 2005, when its peg against the US dollar was lifted.
In the intervening seven years, the yuan has gained 33 percent against the greenback and is considered to have entered a balanced level as China's trade surplus has been shrinking.
"The surplus may be 1.6 percent of China's gross domestic product in the fourth quarter of 2011, suggesting a balanced level of the exchange rate," the Fudan University's Institute of Financial Studies wrote in a report on Thursday.
The report said maintaining a generally stable exchange rate of the yuan should be the target of policy-makers for the middle to long term, adding that the yuan may strengthen 2 to 3 percent against the US dollar in 2012.
The Citibank note said that no dramatic progress on the proposed interest and exchange rates reforms are likely in the short term, and with external headwinds from international markets and uncertainties in the domestic economy, efforts will be put more toward risk control and management.
Economists think that China will try to boost its bond market in a bid to foster direct financing amid a weak stock market and the need to keep monetary policy prudent.
"Securitization of bank loans may be discussed with the aim of reducing the bank recapitalization burden on the stock market," the Citibank note said. "This will also be beneficial for a healthy development of the bond and stock markets."
Lu Zhengwei, chief economist of the Industrial Bank, said that banks' ability to give loans will still be limited by tight risk-management measures even after cuts in reserve requirements, and allowing more companies and banks to issue bonds will ease the liquidity strain.
"That will provide a hedge to the cooling economy," Lu said.
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