Financial Industry to Continue Steady and Safe Operation

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Last updated at: (Beijing Time) Thursday, December 05, 2002

Financial Industry to Continue Steady and Safe Operation

There is no current threat to the normal functioning of China's financial system and China's financial industry, now and in the future, will continue its steady and safe operations, said central bank Governor Dai Xianglong Wednesday.

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China's central bank governor Dai Xianglong said Wednesday that China's financial industry will continue its steady and safe operation.

At the opening ceremony of The China Conference: The Year of Capital, Dai said that the financial sector enjoyed many positive factors, including sustained fast economic growth, a stable currency and fast growing foreign exchange reserves.

In addition, he said, all the indices of China's foreign debt management were far lower than internationally-recognized alarm levels; the securities and insurance markets were constantly improving; the rate of non-performing loans in financial institutions had fallen continuously; and the general public had full confidence in the reforms and development of the banking industry.

He said that with the historic transition from a planned economy to a socialist market economy, China had primarily established a new financial system suited to the new economic system.

However, he said there were still problems in the financial industry which need to be solved soon, such as the lagging reforms of financial enterprises, the comparatively high rate of non-performing loans in some financial institutions and the disproportionate social financing structure.

He said that, generally speaking, China's financial industry was developing steadily amid reform measures, financial risks accumulated in the past had been brought under control and were being solved. It was expected that the financial industry would continue its development momentum and play an even bigger role in the country's construction.

The two-day seminar, co-hosted by the Industrial and Commercial Bank of China and the Hong Kong and Shanghai Banking Corp Ltd (HSBC), opened Wednesday and drew more than 700 participants from 24 countries.

Some Western analysts have long held views that China is facing an imminent financial crisis, citing the non-performing loans ratio at its State-owned commercial banks as a primary concern, experts said.

Earlier this year Dai said the average non-performing loans ratio at China's State-owned commercial banks was about 26 per cent. That is far from enough to shake other robust parts of its financial system and the overall economy, he said.

The ratio also dropped by 3.9 percentage points last year and a further 3.3 percentage points in the first nine months of this year, Dai added. "The risks accumulated over the years have been contained, and is gradually being reduced''.

Rapid economic growth, which he said would hit 7.8 percent this year and will have no problem reaching an average of 7 percent in the coming 10 years, give strong support in preventing financial risks.

Dai also said the renminbi has strengthened by 44 per cent against the US dollar and 5 percent in real terms since 1994. Foreign reserves also rose to US$274 billion at the end of November, equivalent to 10 months of China's import value, he added. Foreign debt also continues to decline, with around US$160 billion outstanding at the end of June. Savings deposits also hit a hefty 9.2 trillion yuan (US$1.1 trillion) at the end of October, securing commercial banks' liquidity needs, he said.

In the future, Dai said China will steadily promote the full convertibility of the renminbi to foster orderly movement of international capital. The currency is now convertible on the current account and 75 per cent of the entries on the capital account.

China's strategy of opening up which balances integrating with the rest of the world and fending off risks is successful, he said.

Dai reiterated that the renminbi's current exchange rate is appropriate, but said the government will try to optimize the mechanism through which the rate is determined using stable measurements and keeping with "new circumstances in international capital flows.''

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