BEIJING (Reuters) - Risks from local government debt are controllable and slower price rises make China's anti-inflation campaign less urgent, but Beijing needs to be ready to use "appropriate policy instruments" to deal with external shocks, China's central bank governor told state media in an interview published on Sunday.
"We need to be prepared for a poor external environment," Xinhua reported Zhou Xiaochuan as saying.
Zhou added that despite the risks, China's economy has the momentum needed to grow strongly in 2012.
The central banker's comments follow the conclusion on Saturday of an important financial work conference held in Beijing.
In a speech marking the conference's end, premier Wen Jiabao urged the country to reduce risks stemming from local government debt and called for better regulation to manage risks.
Economists believe there are 2 trillion-3 trillion yuan of sour loans lurking among the 10.7 trillion yuan of debt local governments had by the end of 2010.
Governments borrowed heavily during the global financial crisis as part of China's massive fiscal stimulus effort.
Zhou said that while the risks of inflation were lower, keeping prices down remained a priority.
"We should not loosen policies to rein in excessive consumer price gains, and reasonably manage inflation expectations," he said.
Inflation slid to 4.2 percent in November, down from a three-year high of 6.5 percent in July.
When asked about the risks to China of a global downturn, Zhou said that China would probably see a "mass withdrawal of foreign capital" said Xinhua.
Zhou said the RMB's floating band could be widened when the country's capital inflows and outflows are more balanced. Currently, the Chinese currency can rise or fall 0.5 percent from a mid-point set daily by the central bank.
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"We need to be prepared for a poor external environment," Xinhua reported Zhou Xiaochuan as saying.
Zhou added that despite the risks, China's economy has the momentum needed to grow strongly in 2012.
The central banker's comments follow the conclusion on Saturday of an important financial work conference held in Beijing.
In a speech marking the conference's end, premier Wen Jiabao urged the country to reduce risks stemming from local government debt and called for better regulation to manage risks.
Economists believe there are 2 trillion-3 trillion yuan of sour loans lurking among the 10.7 trillion yuan of debt local governments had by the end of 2010.
Governments borrowed heavily during the global financial crisis as part of China's massive fiscal stimulus effort.
Zhou said that while the risks of inflation were lower, keeping prices down remained a priority.
"We should not loosen policies to rein in excessive consumer price gains, and reasonably manage inflation expectations," he said.
Inflation slid to 4.2 percent in November, down from a three-year high of 6.5 percent in July.
When asked about the risks to China of a global downturn, Zhou said that China would probably see a "mass withdrawal of foreign capital" said Xinhua.
Zhou said the RMB's floating band could be widened when the country's capital inflows and outflows are more balanced. Currently, the Chinese currency can rise or fall 0.5 percent from a mid-point set daily by the central bank.
yahoo.com
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