Leaders in the financial sector have echoed the government’s call for a more moderate monetary policy and modest RMB appreciation, despite the short-term effects that the changes may have on businesses, particularly in China's export industry.

While the RMB's appreciation is mainly based on the requirements of the currency market, a moderate RMB appreciation will help enterprises grow in the long run, Bank of China (BOC) President Li Lihui told China.org.cn in a recent interview.

"RMB appreciation does generate pressure on the export industry, especially on the low value-added sectors. If [appreciation] exceeds the profit margins of most enterprises, they may suffer a fatal attack," Li said. However, RMB appreciation, Li said, would "help promote [firms'] restructuring" in the long term.

Recently, government and industry leaders have shown concern that China's exports are losing their former advantage to countries like India and Vietnam due to the RMB's appreciation. Premier Wen Jiabao said in his Mar. 5 report that the government should responsibly reform the RMB exchange rate mechanism and encouraged the settling of cross-border trade accounts in RMB whenever possible.

Li said he believed that currency appreciation is inevitable due to China's booming economy. He added that internationalization of the RMB would benefit Chinese companies who have previously had to rely on a stable U.S. exchange rate to settle international accounts.

Annual RMB appreciation will likely be controlled to 3 to 5 percent, Li said.

Li Lihui, president of Bank of China (BOC), said a moderate monetary policy helps enterprises grow. [By Wang Ke / China.org.cn]

Loans for enterprises secure, Li says

After flooding the economy with US$2.7 trillion in new loans in the last three years, the People's Bank of China (PBC), China's central bank, has tightened lending. The PBC has raised interest rates and pushed the reserve requirement for banks to its highest level in two decades.

Li said that due to the national requirements for stricter credit controls, this year BOC will further strengthen its credit management to allow for moderate growth in the credit market.

"Appropriate loan growth is a very important precondition to banks' sustainable growth," Li said.

According to Li, lending in the first two months of 2011 was "very reasonable and balanced." BOC aims to lend no more than 40 percent of this year's target for new loans in the first quarter, and 2011 lending will be "slightly lower" than 2010, Li said.

Despite the planned reduction in total lending, Li said BOC's "optimized structure" will allow both large corporations and small to medium-sized enterprises (SMEs) to be able to receive the funding they need. However, Li said that firms would have to adapt to the tighter controls on lending.

"It's no problem for good SMEs to receive our loans," Li told China.org.cn. "What these companies should do is to adjust their financial structure well."