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China Yuan Getting Back to Normal, Says PBOC Governor Zhou
Zhou said the central bank would maintain a ‘prudent’ monetary policy
By LINGLING WEI
Updated March 12, 2016 12:01 a.m. ET
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BEIJING—China’s top central banker Zhou Xiaochuan has a message to those rushing to convert their holdings of Chinese currency into dollars these days: No need.
At a news conference Saturday, Mr. Zhou, the governor of the People’s Bank of China, said he sees a gradual “return to normalcy’ in the yuan’s exchange rate in the wake of the currency’s sharp selloffs early this year.
Mr. Zhou said recent pressure weakening the yuan, also known as the renminbi, mainly came from uncertainty over China’s economy, bouts of turbulence in China’s financial markets and the divergent monetary policies pursued by central banks around the world.
“I can’t rule out any future fluctuations” in the exchange rate, Mr. Zhou said. “But the current trend is a return to normalcy and rationality.”
The news conference, which was held on the sidelines of the annual national legislative session, is the second time Mr. Zhou has faced the media in a little over two weeks. The appearances come as the government stages a messaging campaign to shore up confidence in an economy that is markedly slowing, weighed down by debt and overcapacity, and that is trying to shift its drivers toward consumption and services and away from investment and industry.
Accompanying Mr. Zhou on the stage Saturday were three of his top lieutenants, who oversee the central bank’s exchange-rate policy, management of foreign-exchange reserves and the country’s financial stability, respectively. “I want you to get to know them as well,” Mr. Zhou, currently the longest-serving central banker of a major economy, told a roomful of domestic and foreign reporters and photographers.
Mr. Zhou batted aside concerns raised by some economists that the government’s newly set growth target for the year of 6.5% to 7% will necessitate concerted stimulus spending and an easing of credit. Mr. Zhou disagreed, saying there is no need for excessive monetary easing.
Barring any international and domestic shocks, he said, “monetary policy will remain prudent.”
The central bank, he said, is eyeing the country’s low inflation and deflating prices for factory supplies before adjusting interest rates. The bank has cut the benchmark interest rate six times in 17 months and again last month reduced the amount of deposits commercial banks must hold in reserve with the central bank.
Asked about plans to help Chinese banks deal with fast-rising piles of bad loans, Mr. Zhou said one solution is to allow banks to repackage them as securities and then sell them to investors.
Banks have incentive to carry out so-called securitization as it could help them remove bad loans from their books and expand new lending, Mr. Zhou said. But the central banker also offered a note of caution about the risks associated with such moves, pointing to the role played in the global financial crisis by the risky securitization of questionable home mortgages.
“We’ll draw lessons from international experience,” Mr. Zhou said.
Currently, the Chinese central bank has picked a handful of big banks for a trial bad-asset securitization program. Securities to be sold under the scheme can only be sold to institutional investors, said Mr. Pan Gongsheng, a deputy governor of the central bank.
Mr. Zhou’s recent public appearances contrast with his lack of visibility for much of the past six months, a volatile period for the yuan and China’s stock markets. Since his re-emergence, part of his new message—repeated Saturday—is to allay fears that the high volume of money leaving China in recent months amounts to capital flight that could destabilize the overall economy.
Pointing to recent sharp declines in China’s foreign-exchange reserves—viewed as a sign of money leaving China—another deputy central bank governor, Yi Gang, said most of that drop was due to businesses, banks and individuals purchasing dollar funds from the central bank.
Chinese companies, for instance, used the dollar funds to pay off about $100 billion in foreign debt last year, Mr. Yi said. Going forward, he said, “both capital inflows and outflows will be in a reasonable range.”
Mr. Zhou also said there was no need for Beijing to weaken the yuan to stimulate the nation’s exports or boost the competitiveness of products made in China. Even amid weak demand for goods world-wide, he said, “China exports are taking a slightly bigger share in global trade.”
On China’s housing market, in which a few major cities are seeing rapid price rises while most struggle with excess supply, Mr. Zhou said the sector is still under pressure to destock.
Mr. Zhou and his colleagues warned against property developers and agencies using Internet-financing platforms to help home buyers fund their down payments. The practice is illegal and could increase risks in China’s financial system, said Mr. Pan.
—Grace Zhu contributed to this article.
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