NPC Press Conference: not so Straight to the Bank

15th press conference during the 4th Plenary Session of the 11th National People’s Congress, March 11, 2011, 10:45, held at a multi-function room of the NPC’s news center’s media center (梅地亚中心).

[Main Link: Enorth, March 11, 2011]
[All links within the quoted questions and answers underneath have been added during translation. The following are excerpts, and no translation of the entire account by Xinhua / Chinese government website / Enorth.

Zhou Xiaochuan (周小川), People’s Bank of China’s (PBoC) governor;
Hu Xiaolian (胡晓炼), People’s Bank of China’s deputy governor;
Liu Shiyu (刘士余), People’s Bank of China’s deputy governor;
Yi Gang (易纲), People’s Bank of China’s deputy governor and head of the State Administration of Foreign Exchange [this should include China’s foreign exchange reserves] were taking questions.

Zhu Shouchen (祝寿臣) chaired the press conference,  introduced the four guests from the PBoC, and continued as follows:

This press conference doesn’t provide English translation, please ask your questions in Chinese. Foreign journalists who don’t speak Chinese can also ask their questions in English. Please state your media organization when asking a question. Please start to ask your questions.

CCTV and China Internet Television reporter (中央电视台和中国网络电视台记者):

Governor Zhou, current inflation pressures are quite high, and society is expecting increasing interest rate channels ([利]息通道 / 利率通道). But increasing interest rates will also cause an increase in hot money. How will the central bank balance the two difficult questions of exchange rates and interest rates? Another number released today says that the CPI reached 4.9 percent in February, which was basically stable compared with January. Will there be a one-time big adjustment of the exchange rate as the next step against inflation? Thank you.


After the successful national response to the global economic crisis, inflation increased, and under such circumstances, interest rate policies are an essential tool. Any tool of financial policies can have a negative impact, as you have mentioned, as it may lead to more capital inflows. But as you may also all know, China’s capital market hasn’t yet been entirely liberalized, but it is still controlled. We therefore have some tools to manage capital flows. As is also known, there are countries which have no capital market controls, but under these circumstances, monetary policy has to weigh the advantages and disadvantages (进行利弊权衡), and if, after comparing them, the advantages outweigh the disadvantages, such tools will have to be used. Currently, applying the interest-rate policy is a central and essential tool.
Your second question touches on the CPI. China is a very large economy, with a big population, and with a big scale. We therefore say that although the exchange rate has a certain effect on domestic prices, but proportional to the rather small liberalized economy, this effect isn’t really big. So, among the most important tools against inflation, there is no particular focus on tools related to foreign exchange rates, given that there are still other tools. I therefore believe that our exchange-rate policy and interest-rate policy must adhere to the “three characteristics” (三性)1) of which one is gradual (渐进性),  which is to say that we can adhere to a gradual approach in reforming the foreign exchange-rate, and strengthen the exchange-rate’s flexibility.

In a reply to a Phoenix TV (凤凰卫视, Hong Kong) reporter, who asked if, given that inflation or CPI shad still exceeded market expectations (as pointed out in some recent news coverage in February, on January’s CPI, too), Zhou said:

Inflation expectations, I believe, are now generally in a stable condition. That’s to say, when we look at the CPIs of December, January, and February, although they still move at a high level, inflation expectations are now relatively stable. As the central bank has said, we have never ruled out the use of any tool, and that in accordance with the actual economic situation [at at time], control of liquidity in the market may be increased.

Several questions later, replying to another  Hong Kong reporter’s question, Zhou also pointed out that most emerging markets’ CPI was clearly higher than China’s (新兴市场大国多数的CPI都比中国要明显高一些)2).

A question from a French reporter (apparently Point de Vue / 《观点》周刊) about a specific time table for making the Chinese RMB fully convertible (您能不能就人民币完全可兑换这样一个进程给出一个时间表) was answered by deputy governor Hu Xiaolian, but without a specific time table.

Asked by a China Daily (中国日报) reporter if the central bank planned to reduce the share of American treasury bonds in its foreign exchange reserves, deputy governor and head of the State Administration of Exchange Yi Gang replied that diversification had long been the central bank’s policy.

Taiwan Commercial Times (台湾工商时报) reporter:

Through continuous efforts of both sides, the two sides of the Taiwan Strait have signed the Economic Cooperation Framework Agreement (ECFA). Is there a chance that the two sides will implement a monetary settlement system? Would Fujian Xihai Economic Zone make first tests in this regard? According to your point of view, in which fields should the two sides of the Taiwan Strait’s financial businesses develop their cooperation first of all? Thank you. (通过两岸不断努力,稍早前两岸终于签订了金融贸易ECFA协议,近年内两岸有没有可能实施货币清算机制的启动?福建海西经济区会不会在这方面先试先行?依据你们的观点,今年两岸金融业务的开展应该从哪几方面开始优先合作?谢谢.)

Zhou replied with a barrage of good-atmosphere platitudes, ending both his two answers with the more-and-more formula (越来越多), and was assisted with another more-and-more slipslop by his deputy Yi Gang.

A reporter with the Portuguese News Agency (LUSA) was assured that China had confidence in the Euro area, even if the People’s Bank of China  wouldn’t make specific announcements about how many bonds would be bought on which kinds of occasions.

Zhejiang Satellite TV (浙江卫视记者) reporter:

As for our province, Zhejiang, small and medium-sized companies (SMEs, 中小企业) are depending on bank capital, but bank financing is currently very tight. Banks can easily raise interest rates, and the SMEs have absolutely no bargaining power and can be easily harmed. May I ask Governor Zhou how, under a tightening policy, harm for the SMEs can be avoided? Thank you. (拿我们浙江来说,中小企业对银行资金较为依赖,现在的情况是资金很紧张,银行就会顺势抬高贷款利率,中小企业根本就没有议价能力,很容易受伤,请问周行长在紧缩政策下怎么样避免不伤及中小企业?谢谢。)


Since last year, SMEs loans share has risen strongly. In the past, within the bank loans granted, the big companies’ share was quite big, and there were somewhat few SMEs, and their share was comparatively small. With last year’s “three-tiered system”, the loan amounts to big, medium-sized, and small companies were basically the same, each of them with a share of about one-third, which is a good sign.
去年以来,中小企业的贷款比重有大幅度提高,过去在银行贷款汇总数据里面,大企业占的比重相当大,中等企业少一点,小企业比例比较小。去年实现了 “三三制”,银行体系总的对企业贷款里,大型企业、中型企业、小型企业三个组别贷款总量基本差不多,各占三分之一,这是一个好的现象。

As for the situation under the macro-economic changes, with monetary policies being switched from moderately loose to a firm one, capital prices have to rise – that is normal. Big, medium-sized and small companies may all have to shoulder rising interest rates, which is inevitable. Small companies’ increases in capital costs may be slanted into the direction of costs rising more strongly, which can be worked on from two directions. One is to encourage commercial banks to take more care of small businesses, and to further consolidate and develop small companies’ loans. Many commercial banks are aware of this.

On the other hand, commercial banks must be required to show better abilities in their pricing. Actually, under different economic circumstances, a bank may price its loans according to the risks at the company in question, and reward those with better repayment abilities, and lower risks – and vice versa -, so that the companies will feel that they are treated impartially. We also encourage small companies to choose from the market. Different banks may show different attitudes towards you, may have different opinions about you, and will also price loans differently – this requires choices.

As the central bank, we mainly do one thing – to let our credit information system include more SME numbers. All SMEs with a loan history have been included in our credit information system, which can provide commercial banks with data of all kinds, help them to understand the company’s loan situation, and price loans based on that information, including risk premiums. The resulting better accuracy can benefit SMEs. Of course, Chinese SMEs do differ from each other, and can’t be judged across the board. Thank you all.



1) sān xìng (三性, three characteristics) is also a religious term, about good, bad, and neutral seeds, or about the three types of charactergood (善性), bad (恶性), and neutral (无记性).

2) For some background concerning Beijing’s computation of the consumer price index (CPI), please read The Emperor’s new Thermometer (February 16), and Seasonal Considerations (February 19).


The Government’s Macroeconomic Controls, July 1, 2010
“Using” the Credit Squeeze”, January 18, 2010


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