Working Out Big Banks' Role in China
In the debate over what policies can reinvigorate China's economy, which grew at its slowest rate since 2009 in the second quarter, many are questioning whether large commercial banks should lead the charge, The Wall Street Journal reported in an interview.
Jiang Chaoliang, the leader of one of the country's four major state-controlled banks—he now has more than six months under his belt as chairman of Agricultural Bank of China Ltd.—spoke with Wen Qiu of Caixin recently about the role of big banks in the current complex economic environment and how to take advantage of this window of opportunity for economic reform.
Mr. Jiang's comments have been edited and translated.
Caixin: What's most important to maintaining economic growth?
Jiang Chaoliang: Economic growth primarily relies on exports, consumption and investment. But in the current circumstances it's very difficult to get these three things on par with one another. With a slow recovery in the U.S. and the euro debt crisis still facing an uncertain future, exports are unlikely to have a strong contribution to growth.
Consumption takes time to grow because it requires large improvement in the social-security network and greater varieties of consumption choices. Neither can be realized in a short time. So increased consumption can help maintain but not significantly stimulate economic growth.
This leaves us with only investment. Maintaining steady investments thus becomes all the more important.
Caixin: Will the central government continue to loosen monetary policy?
Jiang:Right now lending by commercial banks is still reasonable. The central bank has clearly adopted the position that when promoting investment, it is important to monitor and control the quality and efficacy of the loans. Restrictions by the central bank will not be considerably loosened, but a series of actions it recently took demonstrates that future monetary policy will be designed to lower enterprises' financing cost.
The effective demand for loans from the real economy has been relatively good, partly because investments are needed in many areas, including urbanization, upgrading information technology and implementing the 12th Five-Year Plan.
Currently, banks can lend to projects already under construction and those that have great growth potential, such as water-conservancy projects in suburban areas. As a listed commercial bank, AgBank has robust internal and external restraints against excess expansion. While serving the real economy, we will not blindly expand lending.
Many countries will have a general election this year. Many of these countries also have been experiencing economic slowdowns. Policy reactions are being held off in some countries because of political transitions. In general, though, monetary policies are being gradually eased. Earlier, the central bank lowered banks' reserve-requirement ratio as a countermeasure against dropping capital inflows and drying liquidity in the market.
The change was necessary because in the future the size of foreign-exchange inflows is very likely to remain small, while the amount of liquidity due to be injected into the market by the central bank is expected to drop. A reserve-ratio cut is necessary to ensure stable growth of money supplies. Read more. (Subscription required.)