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Equity market can bring down corporate leverage: PBOC governor
By Dai Tian and Li Xiang ( chinadaily.com.cn ) 2016-03-20
Central bank governor Zhou Xiaochuan said the country will encourage more equity financing to bring down corporate debt leverage.
With a high saving ratio and a relatively young equity market, it's understandable for Chinese companies to rely heavily on raising debt instead of issuing equity, Zhou said at the China Development Forum held in Beijing on Sunday.
China had a saving ratio as high as 46 percent or so as of last year, compared to a 20 to 30 percent average level in other countries.
"Of course, the leverage ratio cannot be too high," said the governor at the forum, adding that the country will accelerate developing a better capital market and encourage more equity investment in the coming five years to decrease companies' dependence on debt.
Confidence was put into test last year throughout to January, because of the market volatility and debates on China's economic slowdown, said Zhou, while adding that "recent data has shown restoration of faith."
Zhou noted China respects the demand-supply market mechanism, and renminbi exchange rate will remain at a reasonable level in reference to a basket of currencies and the Special Drawing Rights.
In response to China's stand on a free floating exchange rate, Zhou said the country has been building a managed floating exchange rate.
China keeps an close eye on monitoring of money-laundering and financing for terrorism use and will also keep risks such as excessive external debts and currency mismatch at bay, as to learn from lessons in the past including the Asian financial crisis in the late 1990s, said Zhou.
