Hong Kong journalist: Thank you, Mr. Zhou. We notice that you have talked about the problem of international balance of payment in 2004. However, in the past few years, trade surplus has still been increasing quickly. What problems may it result in? Are there any solutions to this problem? The Foreign Exchange Bureau has decreased the short-term external debt and the government is forming a state foreign exchange investment company. Can you give us more information? As an international financial center, what can Hong Kong do? We've also noticed that among the 200 proposals on funds' liberal distribution, which were put forward by Hong Kong, more than 80 are concerned about finance. And what will be put into practice this year?
Zhou Xiaochuan: First, as we have said recently, the central bank have quite a few ways to recycle the excess liquidity in the market, including opening market operations, the rate of deposited reserve, refinancing rate and other ways, which we will continue.
As to the imbalance of trade in import and export, also the still increasing trade surplus, it depends on the amount of the domestic demands and the international demands to China, which determines the speed of import and export growth. Actually, import and export both are increasing just as two people are racing, but one is running faster. The favorable factors for export include new production capacity formed by domestic new investment and foreign direct investment. As Minister Bo said, foreign direct investment has a great effect on the export. In addition, with the development of global information, export merchants can easily capture global opportunities for business with the help of the timely information. Recently a quite popular book named The World Is Flat just describes this phenomenon. There is also more outsourcing of overseas service industry in China. As for the favorable factors for import, one is the adjustment of exchange rate, and China also imports many raw materials. There are also factors that will reduce China's export, like the increasing cost, the rising price of labor and the improving society security. All these factors are influencing the balance of our import and export comprehensively. The consequences lead to the unbalanced tendency in the trade, which needs a period of time to regulate and achieve a balance.
Speaking of China's policy to adjust the disequilibrium of international payments, not long ago some explanations about this question have been made in the National Financial Conference. Above all, the structural adjustment of national economy is most effective to adjust the disequilibrium of international payments. We should first expand domestic demand, especially expanding the consuming demand and developing service industry. Service industry is an important aspect for the future increasing of domestic demand. Apart from this, the structural adjustment of national economy includes expanding import, which requires the removal of some barriers in policies. In addition, we should encourage China's enterprise to invest abroad. However, it will take a long time for the structural adjustment of national economy to take effect. Yet, it is the most important and leading policy.
As a subsidiary policy, adjustment of exchange rate, with its price leverage effect, can also function in balancing import and export. In addition, exchange control can go with the structural adjustment policy and the exchange rate policy to make some adjustments, for example, providing convenience for out-bound investment and for the use of exchange in regular projects.
Just now the Hong Kong journalist mentioned the issue of decreasing short-term external debt. Now it is not necessary to borrow short-term external debt. In the past, because of the limitation of the political system, foreign capital bank and foreign-funded enterprises borrow quite a lot of short-term external debt, but now they needn't do that. So we need to shrink it. The above actions all can help in the international balance of payments.
You may all have noticed that the three regulation institutions—banks, securities and insurance sectors—put forward some policies on how to better exert the financial cooperation between mainland China and Hong Kong. As to the People's Bank of China, we have announced in January that we would further expand RMB business in Hong Kong, specifically the business of issuing RMB bonds. This business is under preparation and will be available soon.
CCTV journalist: Mr. Zhou, in the market some enterprises have bad records, such as failing to reach the standard of environmental protection. Now the People's Bank of China has put these records into enterprise credit data, and if these enterprises apply for loan, their application might not be approved. Are there any other similar financial services that the Central Bank have provided? What does the financial institution consider about supporting the "three-agriculture" issues?
Zhou Xiaochuan: The financial services of the Central Bank have the meaning in broad sense and narrow sense. Just now the enterprise credit data service you mentioned is one of them. The Central Bank provides the service of payment and settlement system as well. Almost all the payments made across banks are settled with this service of the Central Bank. Now the large settlement system involves about 500,000 transactions every day, with a total transaction amount of one trillion RMB or so, from which we can see the importance of this service.
In the small settlement system there are also quite a few kinds of services. The one, which is closely related to us, is the cross-bank transaction by bank cards. Through the cooperation between the Central Bank and the commercial banks, we offer cross-bank settlement service and other services, including the standardization of credit cards, internal cooperation and communication, and payment security.
Another service of the Central Bank is to mint currencies. Our banknotes and coins are all made series after series in order to anti-counterfeit and crack down the currency of counterfeit money. The service also includes the transportation and safekeeping of banknotes. Where the banknotes are needed, where the banknotes can be withdrawn, where there are worn or old coins, and where the banknotes should be collected and destroyed, all these services should be offered by the Central Bank.
In addition, the cracking down on transmission of illegal money is one of the services. It is not a formal service, but it is done for the financial stability, mainly in order to prevent the bad phenomena such as smuggling, narcotic traffics, corruption and bribery, financial fraud, tax evasion, and so on. Another financial service is acting agent of national treasury, which deals with the transactions of state treasury. And the services cannot be seen by us because we just do it with our transaction in the branch offices of the commercial banks in China. However, because of the above services, our country's economy can develop effectively and healthily. The Central Bank's service in broad sense can include the construction of financial market. This market is formed by the Central Bank, the commercial banks and other financial institutions. In this market, the People's Bank of China is in charge of the development and improvement of inter-banks market, which includes fund lending market, security market, and other products market. And for foreign exchange market, we all know there is a China Foreign Exchange Trade Center and gold market. These markets can be considered as a kind of service for the market participants. Speaking about the "three-agriculture"issues, under the direction of the government, the Central Bank and other financial institutions together have done something, and leave something else uncompleted, which are being undertaken. Firstly, we pushed the reform of Rural Credit Cooperatives with China Banking Regulatory Commission and have made some progress, greatly promoting the loan capability of Rural Credit Cooperatives.
Secondly, we should improve the way of mortgage guarantee which the farmers should abide by as they get a loan. In the past, there is a lot of difficulty in mortgage and guarantee. At present, we are trying the way of small loans. Thirdly, in the Central File No. 1 of this year, the agriculture issue was mentioned that Agriculture Insurance should be spread after the successful try on it. Fourthly, it's about the reform of the postal deposit business. In the past, the postal deposit provides much convenience for the payment service in the rural area. But sometimes the use of the deposit cannot be returned to the rural area. Part of the postal deposit reform is also included in the financial reform. Through the postal deposit reform, in the future, the postal system, especially the deposit drawn by the postal system, can provide better service for the "three-agriculture"issues. Lastly, the joint-stock reform in the Agricultural Bank of China shall be carried out this year, which includes finance reorganization, joint-stock reform and listing at the appropriate time. This reform can intensify the service for the regional economies of counties and the "three-agriculture"issues. In addition, there are also two things which have almost been completed. One is the supply of loan for the"three-agriculture"issues which concern about the reform of Rural Credit Cooperatives and other rural financial institutions. The other is to encourage the Rural Credit Cooperatives to develop in the right direction through the Difference Reserve Ratio System performed by the Central Bank, promoting their capability of loaning. All the above five respects have began, but they don't keep the same pace and should be improved in our later work. These are our ideas about the "three-agriculture"issues.
Journalist from Asahi Shimbun: I want to ask Mr. Zhou. At the end of February, sinking emerged in the stock markets all over the world. Many people think it owes to the adjustment of Shanghai market. What's your opinion about that? What's your analysis about the global stock market, including the volatile Chinese Market? Under the circumstance that the relationship between stock markets becomes closer and closer all over the world, what should be done to improve the Chinese financial market, especially its stock market?
Zhou Xiaochuan: For the volation of the stock market, there are many different reasons: now the cause of the market itself, now the problem existing in macro economy, now the reasons from the aspects of micro economy. For example, some companies meet difficulty. There are many possibilities. For the volatile market not long ago, I can guess, whether from the media, from the economists, or from the stock market experts, there are many remarks. In my opinion, it does not stay on the level of macro economy and will not cause fateful change. The fluctuations of the stock market have an interactive effect around the world, which shows the gradual development of globalization. In the past, China thought itself a relatively small market and a being-building immature market, or we can say it is a newly-emerging market which is in the period of economy transition. With the development of the integration of global economy, the volations of the stock market affect one another. That tells us that the Chinese market needs to speed up the development, increase the ratio of direct financing and make our capital market better, faster, and more international. If we can achieve that, whether the outside influences us, or we influences the outside, we all can feel like operating under the similar conditions and rules and deal with the changeable market easier. Meanwhile, we should also recognize that the markets are always changing and being adjusted, which are not like quiet water in the pond and are always filled with all kinds of waves. As to the liquidity surplus problem, it is a global phenomenon, China is no exception. The financial deficit is big in the USA, where the liquidity is also a usual phenomenon. Financial surplus is a interactive phenomenon under globalization. Macro regulation bureau should pay more attention to it, have their work done better and adopt a stable financial and appropriate deflation policy for the liquidity surplus problem. We should analyze the phenomenon more carefully.