According to The People's Bank of China, Zhou Xiaochuan, central bank governor, delivered a speech at the Economics Forum of 50 announcing there were many things to do for China's next financial reforms, especially the improvement of relevant legislations concerning finance, and the Bankruptcy Law as well as other laws related to loan swindle in particular. Meanwhile the relevant accounting standards are also involved to improve the ecological environment in China's current financial field.

As Zhou put, the current finance and enterprise reform in China is to "fight to win or die", and there should be no large-scale bad assts that exceed the normal standard of the market economy. However, if China does not reform well in terms of financial ecological environment, the percentage of bad assets would rise, which would trigger off financial crises.

To prevent financial crisis from happening, the departments concerned could adopt measures such as by enlarging the interest rate margin and increasing the financial allotments. The conservatively estimated increase of interest rate margin is around one percentage point so as to keep up with the need for settling the bad assets. While others estimate the increase should be 3 percent. However, the widening of interest rate margin and the bank's reluctance to provide a loan could have great impact on the national economy.

"If we could neither widen the interest rate margin nor provide enough loan, the final result would again be the swelling-up and gradual accumulation of bad assts, which still require reform," said Zhou. "When talking about the bad assts, people often like to resort to an analog by saying if a cat's tail is not good-looking and needs cut, you'd better cut it thoroughly once and for all instead of cutting it bit by bit. Because the cat mews tragically as many times as you do the cutting," added Zhou.

As regards how to change China's financial ecological environment, Zhou pointed out that the legal environment will have direct influence on the financial environment. The basic problem existing in the transitional period from planned economy to the market economy is "soft financial restraint". Whether the restraint still exists largely depends on the change and improvement of the legal system.

Therefore Zhou hopes that China issues a Bankruptcy Law that strongly supports the reform of socialist market economy. Meanwhile he also expects certain revision over some provisions in the Criminal Law relating to loan swindle in the near future so as to further enhance and regulate the accounting standard.

Zhou also noted in his speech that with the continuous development of economic transition, the expresses of financial risks will take up many forms and so will the hidden risks crop up that need to be solved. In light of this situation, Zhou summarizes China's financial risks into the nine aspects as follows:

The sustained rise of deposit ratio and M2 result in the concentration of large risk on the banking industry.

The currency stability still faces a heavy potential pressure.

The financial deficit is as always the root of financial instability.

The rigidity of exchange rate system and deep imbalance of international payments are big with grave dangers.

Clients of the banking industries and the relationship between banks and enterprises contain marked risks.

If a certain number of problems concerning companies' internal management are not solved, the state has perhaps once again to help them out of difficulties.

The lack of environment in which financial institutions independently setting prices and capability of price-setting scientifically contain serious financial risks.

The lack of financial innovative system contains the competitive risk of financial rigidity.

The maintenance of financial stability and the precaution against moral risks are also a must.

By People's Daily Online