Unfortunately, it seems that there is still no consensus among various countries about the source of the financial crisis," he said.

TO BE NOTED: From Reuters:

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China's economy hit bottom in first quarter

7:39am EDT

China not clear of crisis despite good signs

7:39am EDT

By Kirby Chien and Eadie Chen

BOAO, China (Reuters) - Chinese Premier Wen Jiabao said on Saturday that the economic polices of countries which issue global reserve currencies require closer supervision as part of building a diversified international monetary system.

Wen and central bank governor Zhou Xiaochuan also cautioned against jumping to the conclusion that China is already on the path to economic recovery, after data issued on Thursday showed signs of an upturn in momentum.

Wen's currency comments, an apparent reference to U.S. economic management that Beijing has blamed in part for the global financial crisis, were twinned with a pledge to promote more international use of the Chinese yuan.

Wen did not mention the United States by name but he has expressed concern in recent months about the safety of Chinese investments in U.S. dollar assets.

"We should strengthen the supervision of the economic policies of the main reserve currency economies and push forward the establishment of a diversified international monetary system," he said in his opening address to the Boao Forum for Asia, held annually in the Chinese island province of Hainan.

It was the second time this month that China has made such an appeal, following President Hu Jintao's call at the London G20 summit earlier this month for the International Monetary Fund to strengthen its oversight of reserve currency-issuing economies.

LONG-TERM SOLUTIONS

China caused a stir in March when central bank chief Zhou floated the idea of reducing reliance on the U.S. dollar as the world's primary unit of foreign exchange by developing the Special Drawing Rights (SDRs) issued by the IMF.

But at the London G20 forum, China did not call for immediate discussion of the subject.

Speaking at the Boao forum on Saturday, Zhou said that his proposal on SDRs was intended mainly to contribute his thoughts on the root cause of the financial crisis and what needed to be done in the long run to prevent such situations in the future.

He was not suggesting that drastic changes to the financial system needed to be taken in the short term, Zhou said.

"It's just like treating a patient. First we need to make a diagnosis. Then comes treatment," Zhou told the forum.

"But right now, not all the doctors have the same diagnosis.... Unfortunately, it seems that there is still no consensus among various countries about the source of the financial crisis," he said.

Premier Wen said China would look at expanding its currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset.

"We should give full play to bilateral currency swap agreements and will study expanding currency swaps in scale and to more countries," he said.

China's central bank has signed six swap deals since mid-December, totaling 650 billion yuan ($95 billion), with countries from Argentina to Indonesia.

The yuan's international potential is sharply constrained by its limited convertibility, an issue that Wen did not broach.

STRONG CHINA

Wen highlighted China's relative strength in the face of the global financial crisis and told the audience of Asian government and business leaders that Beijing stood ready to support other countries through the difficult times.

"A series of economic stimulus measures adopted by China have shown initial results and there have been positive changes in economic performance, which has been better than expected," he said.

His wording was nearly identical to that at a State Council, or cabinet, meeting this week after China said its economy grew at 6.1 percent in the first quarter from a year earlier.

While that was the weakest quarter in year-on-year terms since records began in 1992, analysts said it represented a rebound in quarter-on-quarter growth.

But Wen also said that China would still err on the side of the caution, sticking to its active fiscal policy and moderately loose monetary policy -- which, in practice, have meant a surge in government spending and bank lending.

"We would rather over-estimate the severity of the situation and fully consider difficulties in making longer-term preparation for bigger difficulties," he said.

Central bank governor Zhou also emphasized that, even though there were positive signs that the economy is starting to recover, China is still in the stage of struggling against the global economic slowdown and financial crisis.

"The situation of the crisis is changing constantly. We need to tweak our policies in line with the changing stage of the crisis," he said.

Liu Mingkang, chairman of the China Banking Regulatory Commission, added at Boao that he was cautiously optimistic about the economic outlook and thought banks had adequate provisions to cover any potential rebound in bad loans.

Zheng Xinli, a senior Communist Party adviser, told reporters in Boao that he thought the economy had already hit bottom and would start to pick up steam in the second quarter.

But asked if the government would be able to hit the 8-percent GDP growth target for the year, Zheng said: "I think it is not guaranteed.

($1=6.832 Yuan)

(Additional reporting by Michael Wei in Boao and Aileen Wang in Beijing; Writing by Jason Subler and Simon Rabinovitch)"

This means fast loan growth will continue. The longer this goes on, though, the bigger the risk of asset bubbles developing becomes

TO BE NOTED: From Bloomberg:

"China Central Bank Pledges Sufficient Liquidity (Update2)

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By Kevin Hamlin and Dune Lawrence

April 12 (Bloomberg) -- China’s central bank said it will ensure sufficient liquidity to sustain economic growth, damping speculation regulators may seek to restrain credit after new loans jumped sixfold to a record in March.

The People’s Bank of China “will implement moderately loose monetary policy and maintain the continuity and stability of policy,” the central bank said on its Web site today. It pledged “ample liquidity” to “ensure money supply and loan growth meet economic development needs.”

The statement indicates that reviving growth remains China’s priority amid concern that the credit boom will lead to bad debts and asset bubbles. The world’s third-largest economy, while showing better-than-expected performance in the first quarter, still faces “great difficulties,” Premier Wen Jiabao told reporters in Thailand yesterday.

“It’s likely that the authorities will not change their stimulative policy at least for another month,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “This means fast loan growth will continue. The longer this goes on, though, the bigger the risk of asset bubbles developing becomes.”

New loans rose to 1.89 trillion yuan ($277 billion) in March, the central bank said yesterday. M2, the broadest measure of money supply, grew 25.5 percent, the most since Bloomberg began compiling data in 1998 and more than the 21.5 percent median estimate in a survey of 12 economists.

Stimulus Effect

China’s industrial production climbed 8.3 percent from a year earlier in March and consumer demand grew “relatively rapidly” in the first quarter, adding to signs that the government’s 4 trillion yuan stimulus plan is taking effect, Wen was cited as saying by the official Xinhua News Agency.

The government has pushed banks to lend in support of the stimulus, implemented after the global recession led to a collapse in exports that dragged economic growth to the weakest pace in seven years. China’s lending boom contrasts with the struggle in the U.S. to rid banks of illiquid assets and efforts by central banks from Switzerland to Japan to unfreeze credit.

China’s banks, which are mostly state-owned, have already met the bulk of the government’s target of at least 5 trillion yuan of new loans this year. Lending may top that level by as much as 3 trillion yuan, according to JPMorgan Chase & Co.

“The biggest dangers to China’s economy and financial system come from within, not from outside,” Jiang Zhenghua, former vice chairman of China’s parliamentary standing committee, said at a conference in Beijing yesterday. “The biggest of these hidden dangers is the degree of bad loans in China.”

Bad Loans

Commercial banks’ bad-loan ratio was 2.45 percent at the end of 2008, according to the regulator. The ratio was more than 20 percent in 2003, before the government completed a cleanup of the banking system that cost more $500 billion.

The China Banking Regulatory Commission asked all banks to raise bad debt provisions to 150 percent of outstanding non- performing loans to be “prudent,” Chairman Liu Mingkang said in Beijing last month.

In today’s statement, the central bank pledged to prevent loans from going to high energy-consuming or polluting enterprises or to industries where there is overcapacity. It also reiterated support for loans to the agricultural sector, as well as to small- and medium-sized companies.

“The lending numbers are extraordinarily strong and there must be concerns about the impact on overall loan quality, the potential for new asset price bubbles, and whether these funds can all be allocated to investment projects in an efficient manner,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong. “When you are throwing around so much money so quickly, some of it is bound to be wasted.”

Deepening Crisis

The Shanghai Composite Index has climbed 34 percent this year, the second-best performer this year of 88 benchmark gauges tracked by Bloomberg, fueling concern that some of the increase in lending has been used for speculation.

“Some of the money has gone to the property market, some to the stock market,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong. “It is not what the central bank wants to see.”

Wen cited a month-on-month rebound in trade and gains in stocks and property transactions as evidence the stimulus is working, in an interview at the aborted Association of Southeast Asian Nations meeting, according to Xinhua. Signs of recovery also include a 26.5 percent jump in urban fixed-asset investment in the first two months.

Vigilance is still needed as the global financial crisis is continuing to deepen and spread, Xinhua cited Wen as saying.

China’s economic growth slowed to 6.8 percent in the fourth quarter. First-quarter data is due to be released April 16."

Foreign investors in Chinese banks will in future be forced to accept a lock-up period of at least five years

TO BE NOTED: From the FT:

"China extends banks lock-up

By Jamil Anderlini in Beijing

Published: April 1 2009 18:40 | Last updated: April 1 2009 18:40

Foreign investors in Chinese banks will in future be forced to accept a lock-up period of at least five years, China’s top banking regulator said, after a series of share sales by US and European financial institutions.

In recent months, companies such as Bank of America, UBS and Royal Bank of Scotland have sold down all or part of their stakes in China’s largest state-owned banks immediately after lock-up periods of three years expired.

The new five-year minimum lock-up was necessary to “ensure the safety of China’s banking system”, Liu Mingkang, chairman of the China Banking Regulatory Commission, told a seminar in Beijing, according to people familiar with the matter and also state media reports.

Mr Liu also said Beijing would not reconsider current ownership limits for Chinese banks, which restrict single foreign investors to a 20 per cent holding and all foreign investors to no more than a combined 25 per cent stake in any Chinese bank.

The Chinese regulator decided last year not to allow a higher level of foreign involvement in domestic institutions.

That decision had not been publicly acknowledged until now and could affect the strategy of the few foreign banks that still have the ability and appetite to expand their presence in China.

HSBC, for example, bought 19.9 per cent of China’s Bank of Communications in 2004 in an agreement that would allow it to raise its stake to 40 per cent if and when the government was to raise foreign investment limits.

BofA, RBS, Goldman Sachs, Germany’s Allianz, Singapore’s Temasek and others bought shares in China Construction Bank, Bank of China and Industrial and Commercial Bank of China with promises they would help to improve the Chinese banks’ risk management and managerial capabilities.

But apart from a few minor initiatives, the partnerships largely failed to produce tangible results and when three-year lock-up periods started to expire in recent months most of these “strategic” investors sold all or part of their holdings at a profit at a time when most global banking institutions were in dire need of fresh capital.

Only Goldman has made a public commitment to hold the majority of its stake in ICBC for at least another year.

Temasek, Singapore’s state investment agency that has stakes in both BoC and CCB, has made private commitments not to dump its shares in the market, according to Chinese banking executives."