China policy mantra signals privatization, securitization: official

Wed Aug 7, 2013 5:49am EDT
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By Shengnan Zhang and Gabriel Wildau

SHANGHAI (Reuters) - Ever since Chinese Premier Li Keqiang used the cryptic phrase "revitalize the stock" in an official policy statement in June, market watchers have pondered what policies it entails.

A central bank official has told Reuters that according to his personal understanding, the phrase refers to packaging loans into securities and sales of minority stakes in state firms.

Such reforms would be aimed at cleaning up bank balance sheets and bolstering China's welfare system, said the official, who heads a People's Bank of China branch in a major city and is a member of the National People's Congress, China's parliament.

China's new leadership has pledged to wean the nation off its addiction to investment and credit-fuelled growth in favor of a more consumption-driven model. A range of reforms are expected to be announced at a Communist Party meeting likely to be held in October.

Such re-balancing will require a more generous social safety net that can persuade Chinese households to save less and consume more, as well as cleaning up a banking system saddled with potential bad debts from China's 2008-2009 stimulus spending spree.

The official asked for anonymity because he is not authorized to speak to media about government policy. Branch presidents participate in official PBOC policy discussions, while the NPC votes to approve major policy initiatives.

Li told China's cabinet in June that China would "make good use of the flow and revitalize the stock," a phrase that top leaders have since repeated many times.

"If various levels of government can reduce their equity ownership partially, it will not only further advance state-owned enterprises reform, but also release some funding. That is 'revitalizing the stock,'" the official said.   Continued...

A worker walks past trucks as they line up to load containers onto a ship at a port in Ningbo, Zhejiang province in this July 9, 2013 file photograph. REUTERS/William Hong/Files