Financial stability a top concern at economic conference

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Story By Manju Shukla
Date  12 Dec 2011

The Central Economic Working Conference opens today in Beijing, creating China's macro-economic policies for 2012. Financial stability is a top concern this year, as slowing export growth, soaring government debts and bad loans threaten China's financial system.

The Working Conference will open against challenging economic prospects.

China’s taking a pinch from the global recession, especially the Eurozone debt crisis.

Shrinking European markets have stunted export growth since September, and lowered next year’s projections. The Euro’s depreciation against dollar caused China’s forex reserves a 90 billion dollar loss in value.

Zong Liang, a researcher from the Bank of China, thinks China should find a balance between maintaining growth and reigning in inflation.

Zong Liang, director of International Financial Research Institute, Bank of China, said: "The Euro debt crisis is caused by a combination of factors, such as high-risk lending and borrowing practises, generous pay and pension benefits, and unsustainable consumption. The lesson for us, is that we should avoid any abrupt measures to raise consumption levels, and seek a new area of growth in the transformation of the development pattern. "

China’s 4 trillion yuan fiscal stimulus package gives the country a quick rebound from the global economic crisis, causes excess liquidity and puts a large debt burden on local governments.

Figures from National Audit Office show that local government debt totalled over 10 trillion yuan this year.

In a pilot program to curb fast-spreading debt risks, Shanghai issued China’s first ever local government bonds last month. Zong believes the 7.1 billion yuan program is a step towards holding local governments responsible for their own finances.

Zong said: "Before the local governments relied on the Local Finance Platform to borrow from banks for investment projects. Now the pilot promises to be a more open and transparent approach. The integration of both measures will help to build a healthy finance system at provincial and municipal level. So this experimental program is likely to expand in the future. "

It also helps to curb massive lending and borrowing from banks.

The current non-performing loan, or NPL, ratio stands at less than one percent for major commercial banks. Zong believes the risk is worth it.

Zong said: "We’ve witnessed a rise in loans with the economic crisis. Recent events such as declining exports and domestic property curbs taking hold also sparked some worries. But the risk management has been greatly enhanced along with the reform of the banking system. The NPL ratio is maintained at only 1.8 percent. So panic is unwarranted. "

Reporter: "Experts predict China’s GDP growth rate will be at 8.8 percent next year. The priority is to find a balance between stabilizing growth, adjusting the economic structure, and keeping inflation in check. There’s hope that investment in the middle and west regions will balance out sliding exports. "

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