Chinese banks 'must control pace of lending' as risk grows

Beijing: Chinese banks must carefully pace their lending this year because heavy issuance of loans amid industrial overcapacity has created growing credit risks, China's central bank governor Zhou Xiaochuan said in comments seen on Tuesday.

Zhou also said that the experience of the international financial crisis showed that it was not enough to simply focus on inflation and that the People's Bank of China considered a wider range of issues in determining its monetary policy, including international balance of payments.

‘Good handle'

To that end, he highlighted reserve requirement ratios as an important tool in the central bank's arsenal. Forcing banks to put aside more of their deposits on reserve is a way for China to mop up cash flowing into the economy from its bulging current and capital account surpluses.

Zhou's comments were made in an interview with China Finance, a magazine published under the People's Bank of China, and appeared on its website (www.cnfinance.cn). They repeated almost word for word a speech that he gave on December 22.

We will "keep a good handle on the pace of monetary and credit growth, guiding financial institutions towards balanced release of credit and avoiding excessive turbulence," he said.

He also reiterated the central bank will continue to implement "an appropriately loose monetary policy," while making "efforts to improve the focus and flexibility of policy."