Money

China's high saving rate risks overheating

(Xinhua)
Updated: 2011-05-20 11:11

SHANGHAI -- China's high savings rate may lead to increased investment, which could in turn trigger economic overheating or asset bubbles, said Zhou Xiaochuan, governor of the People's Bank of China, the country's central bank, at a forum on Friday.

Zhou called for caution against "cyclical issues" brought by the high savings rate while delivering a speech at the Lujiazui Forum in Shanghai, an annual gathering of top Chinese financial officials and economists.

The Chinese government needs to shift to a prudential regulatory framework "as early as possible" to strike a balance between supporting economic growth and taming inflation amid rising consumer prices, he said.

There are still uncertainties in the global economy, but unlike developed countries, China now requires more prudent macroeconomic policies, as the country has taken the lead in recovering from the global financial crisis, said Zhou.

To implement a prudential macroeconomic regulatory framework, China should work to enhance financial stability, which may require financial institutions to have stronger capital bases, he said.

The Chinese government is also "cautiously" and "gradually" promoting the use of yuan in cross-border financial transactions, in addition to using the currency in cross-border trade and investment activities, Zhou added.

"The growing use of yuan in cross-border activities will require the currency to become fully convertible in a gradual and orderly way," he said.

The Lujiazui Forum, which is being held from May 19 to 21, has attracted top regulators, bankers and economists from both home and abroad to discuss financial and macroeconomic policy-making issues.

This year's forum is focusing on the theme of "financial systems and macro-management in a new era."