August 27, 2017 / 1:04 PM / a year ago

China needs clear boundaries between state and markets - central bank researcher

BEIJING, Aug 27 (Reuters) - China needs clear boundaries between the government, markets and companies to avoid distortions and “chaos” in financial markets, the head of research at China’s central bank said according to remarks published on Sunday.

Implicit guarantees of lending to local government financing platforms, continued support of “zombie” firms and the lack of financing for private firms were examples of poor governance and contributed to distortions in financial markets, said Xu Zhong, the head of the People’s Bank of China’s research department.

“The first institutional problem that leads to financial chaos is unclear boundaries between government and the market”, Xu was quoted as saying on the official Wechat account of the China Finance 40 Forum, a well-known think tank.

China is in the midst of a deleveraging campaign as it looks to control rising debt, while regulators are also encouraging a more market-driven approach to lending practices and economic development in general.

Xu pointed at that although China implemented depositors’ insurance in 2015, not a single financial institution has gone under, compared with over 500 that failed during the financial crisis in the United States.

“Is the depositors insurance mechanism going to play its role?” Xu said.

“We don’t need to issue too many more regulatory documents. With supervision based on the law, China won’t have a problem of financial chaos. All we need is to implement (existing rules)”. (Reporting by Elias Glenn; Editing by Mark Potter)

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