Zhou Xiaochuan: Micro causes important to financial crisis

By Hou Lei (Chinadaily.com.cn)
Updated: 2009-07-03 15:50

Micro causes have played an overwhelming role in contributing to the global financial crisis, said China’s Central Bank Governor Zhou Xiaochuan Friday.

Zhou made the remarks during the Global Think Tank Summit in Beijing.

Factors at both the macro and micro levels have played a part in the current crisis, Zhou said.

Micro causes include pro-cyclical factors, problems with credit rating agencies, marked to market and fair value accounting rules, as well as issues with financial institutions including lax lending standards and excessive leverage, according to Zhou.

When commenting on the suggestion that both China, with lots of savings, and the US with too little, should make adjustments, Zhou said China wants to make efforts towards this end but "it is not plausible to over-estimate the impact of the two countries."

In terms of China's structural adjustments, Zhou said the optimal choice is to expand household, which will directly enhance the domestic demand and lower the savings rate.

However, Zhou also acknowledged this is easier said than done since the current income distribution structure cannot be dramatically changed in the short term.

According to the governor, the second-best choice is to maintain and expand investments and channel investments to sectors and areas to achieve efficient but not wasteful allocations. So the residual savings (total savings net of total investments) will not be so large and will not have a major impact internationally.