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Financial reform cannot wait

By Murtaza Syed | China Daily | Updated: 2013-06-24 07:15

Financial reform cannot wait

China's financial system is changing fast. Non-bank activities - including those dealing in wealth management products, trust loans and corporate bonds - have mushroomed since the global crisis. In many ways, this is a welcome diversification. However, disorderly growth of the non-bank sector could pose a threat of financial instability and erosion of macroeconomic control in the coming years.

To forestall this risk, China needs to reform its financial system. Without such reform, it will also be difficult to sustain rapid economic growth and rebalance the economy toward consumption. So as China's new leaders embark upon a new era of much-needed reforms, transforming the financial system is appropriately a key item on the agenda.

China's financial sector is flush with liquidity, both because of the high level of savings held domestically by China's capital account restrictions, and large inflows associated with the country's balance of payments surpluses and intervention in the management of the exchange rate. To prevent this liquidity from fueling dangerous lending booms, the People's Bank of China mainly uses direct tools like quantitative limits on bank credit and increases in bank reserve requirements.

Financial reform cannot wait

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