Steady as she goes for the new normal

By Chen Jia (China Daily)

Updated: 2015-03-06

Further liberalization

This year, China's policymakers will further liberalize deposit interest rates and implement a deposit insurance plan, roll out local government bond issuance, and deepen deregulation in the energy and environmental sectors and in utility pricing, according to experts.

"China should think more about how to make its macroeconomic regulation more effective as the economy shifts from high-speed growth to medium-to-high-speed growth", said Zhang Xiaoji, an economic researcher at the Development Research Center of the State Council and a member of the National Committee of the Chinese People's Political Consultative Conference.

"After monetary easing, will the capital flow into the real economy as the central bank expects? Policymakers must carefully examine how the existing interest-oriented mechanism of commercial banks will affect the flow of capital," he said. "I think reform of the banking system needs to be pushed further, because the banks still have features of the planned economy in terms of micro-management."

Yang Kaisheng, a former president of the Industrial and Commercial Bank of China and a member of the CPPCC National Committee, said: "As the Chinese economy has entered the new normal stage, commercial banks must accelerate their transformation and upgrading by restructuring their asset structure profit structure, and the regional layout of branches."

At present, credit assets are taking an increasingly smaller proportion of the banks' total assets, as a result of financial disintermediation, and profits from net interest margins will shrink further.

"Therefore, banks will make great efforts to develop their asset management business to compensate for the decline in net interest income, which may be an indication of the direction of transformation in the banking sector," Yang said.

According to Wang Tao, chief economist in China at UBS, the NPC may also review the much-anticipated comprehensive State-owned enterprise reform plan, which is scheduled for release at the conclusion of the two sessions.

"We expect the government to take a cautious approach with regard to large and centrally owned SOEs (State-owned enterprises), focusing on improving the competitiveness and efficiency of SOEs' operations through the introduction of mixed ownership, improved corporate governance, and the implementation of State capital management."