The People's Bank of China, the country's central bank, will continue its prudent monetary policy, said Zhou Xiaochuan, its governor in Beijing Tuesday.
 
Zhou made the remark when delivering a report on China's monetary policy and financial reform since 2003 to senior governmental officials in Beijing.
 
At the end of 2004, the Chinese government declared that it would exercise prudent fiscal and monetary policies in 2005, putting an end to the proactive or expansionary fiscal policy that has been practiced in China for seven years.
 
China's proactive fiscal policy, in place since 1998, has resulted in seven years of astonishing economic growth, but the government believed prudent policies are necessary now to prevent China's economy from suffering big fluctuations.
In early 2003, China's macro-economy changed greatly as monetary supply and financial loans grew very fast and the Iraqi war and SARS outbreak brought huge uncertainties to the country's economy, Zhou said.
 
The central government strengthened the macro-control policy through strictly controlling the use of land and loans, he said.
 
In 2003, the central bank reminded commercial banks of credit risks in the real estate market and raised the rate of required deposit reserves from 6 percent to 7 percent in a bid to cool down the overheated growth of loans, he said.
 
In 2004, the central bank further adjusted its monetary policy through raising interest rates for reloans and rediscounts in March, elevating rate of deposit reserves again by 0.5 percentage point in April and lifting both lending and deposit benchmark interest rates by 0.27 percentage point in October, he said.
 
"Remarkable achievements have been scored in reform on interest rate marketization," he said.
 
The central bank pushed forward the reform of financial institutions across the country, he said. In 2003 China launched a pilot reform scheme on rural credit cooperatives in eight provinces, and in 2004, the reform was extended to 29 provincial areas, he said.  
 
One of the main targets of the reform is to transfer these cooperatives from the hands of the China Banking Regulatory Commission to the hands of provincial governments, which are urged not to have controlling shares in rural credit cooperatives or interfere in their internal affairs, and to turn them into independent entities responsible for their own profits and losses.

In 2004 the China Construction Bank (CCB) and the Bank of China(BOC) made progress in their joint-stock reforms, and in April 2005, the joint-stock reform of the Industrial and Commercial Bank of China (ICBC) started, he said.

Last year, the State Council, China's central government, allocated US$45 billion of the country's foreign exchange reserves for a pilot joint-stock reform of the CCB and BOC, two state-owned commercial banks.

This year, the State Council allocated US$15 billion of the country's foreign exchange reserves for ICBC's reform. All these state-owned commercial banks, once having high rates of non-performing loans, aim to go public through joint-stock reforms.

Zhou attributed the achievements in China's macro control and financial reform since 2003 to the correct leadership of the Central Committee of Chinese Communist Party and the State Council, and he said the central bank will continue the prudent monetary policy and push forward the financial reform vigorously. 

(Xinhua News Agency June 15, 2005)