China faces an uphill battle against financial risks in the next five years as it gradually opens up its capital account and makes the renminbi an international currency, the central bank governor said.
Zhou Xiaochuan did not detail the risks faced, but said structural conflicts and institutional problems have surfaced and the fate of financial reforms would depend on the nation’s financial security.
“To guard against and eliminating financial risks is a severe challenge for us in the next five years,” the Governor of the People’s Bank of China wrote in an article.
His comments were in a publication in which government department chiefs and provincial leaders discussed the country’s next five-year plan.
He said tools should be used and developed to manage financial risks, lower leverage ratios and prevent systemic financial risks.
China wants to smoothly introduce yuan convertibility under the capital account and expand the use of the renminbi at international financial hubs and in developed countries, the article said.
It also wants the renminbi to become an international currency, with the use of the yuan to exceed one-third of the nation’s total cross-border payment by the end of 2020, it added.
Economists have criticized the government’s “clumsy” responses to the slump in share prices in China this summer.
Premier Li Keqiang has said the government interventions in the market were appropriate and helped to stem risks.
The big depreciation pressure on the renminbi and sharp capital outflows following the People’s Bank of China’s one-off devaluation of the currency in August has also fueled calls for a cautious approach to liberalizing the capital account.
Zhou said regulators would improve their competence in managing fiscal and financial risks.
Read the original article on South China Morning Post. Enjoy the full SCMP experience here:click here to get your subscription offer with US$38 gift voucher. Copyright 2015. Follow South China Morning Post on Twitter.