China has achieved initial victory in containing debt risks – a major threat to the world’s second biggest economy – and has entered a stage of “stabilising the leverage ratio”, the outgoing central bank governor said on Friday.
At a briefing on the sidelines of the National People’s Congress in Beijing, Zhou Xiaochuan, who has headed the People’s Bank of China for the past 15 years, also tried to reassure investors that China would continue to free up its capital account.
He said Beijing could allow mainland investors to buy Hong Kong bonds “at any time” if there was demand. They are barred from doing so at present, but investors in Hong Kong can buy bonds in the mainland market.
“I think that there is probably more that the government can do … to better connect with global capital markets,” Zhou said.
“China is pushing ahead with convertibility in a steady and gradual manner,” he said. “There are some restrictions, and these restrictions will be removed gradually.”
Iris Pang, an economist with ING, said as the face of financial reform in China, Zhou was using his last days in the job to promote modernised, market-based governance.
But it is an open question whether Zhou’s liberal ideas will be followed amid fears the country is heading down an authoritarian path, with President Xi Jinping set to secure the right to rule indefinitely under a proposed change to the constitution.
“Zhou has been consistent throughout his career in pushing forward reform – to liberalise the interest and exchange rates, and free convertibility of yuan. But when he retires, he’ll leave big shoes to fill when it comes to further liberalisation of the market, and risk prevention will be crucial,” Pang said.
In terms of defusing the domestic debt bomb, Zhou said the worst time had passed.