The central bank chief yesterday sought to reassure investors that the domestic stock market was not in the middle of a downward trend and that the country would increase the part direct financing played in the financial system.

"The dramatic fall in the stock market (last month) ... is not a macroeconomic-level problem and should not lead to a change of trend," said Zhou Xiaochuan, governor of the People's Bank of China.

The sell-off at the end of last month, which began when prices of Shanghai A shares fell by more than 8 percent, has been blamed for triggering a decline in share prices across the globe.

However, Zhou said numerous factors could have caused the fluctuations.

"There are many possibilities (to explain the fluctuations)," he added.

He also said China would continue to increase the role direct financing played in the capital market and to build the market in line with international standards so "people ... can better cope with any changes."

Zhou said other countries, including the United States, also suffer from problems caused by excess liquidity.

He added that market regulators should adopt a prudent and "slightly tightened" policy.

At the end of last month, China's M2, a broad measure of money supply, was up 17.8 percent from same period a year ago and 1.9 percentage points higher than the previous month, the central bank said on its website yesterday.

M1, which covers currency and checking accounts, was up 21 percent year-on-year at the end of last month, while M0, or cash in circulation, increased by 25.1 percent from a year earlier, compared with a year-on-year decline of 4.8 percent at the end of January.

The sharp rise in M0 was largely the result of the late Chinese New Year holiday this year, the central bank said.

The holiday generally distorts economic figures. It fell in the middle of February this year and in mid-January last year.

Outstanding yuan loans amounted to 23.5 trillion yuan (US$3 trillion) at the end of last month, representing a 17.2 percent year-on-year increase, which was more or less in line with previous trends.

Zhou also said details on how a batch of yuan-denominated bonds would be issued in Hong Kong were under preparation and "may come out quite soon".

He also said the central bank was wrapping up preparations for market-oriented interest rate reforms for rural credit cooperatives and other rural financial institutions. Moreover, the authorities are planning to impose a differentiated reserve ratio on rural credit cooperatives to encourage them to improve lending efficiency.

Asked about the cross-Straits financial situation, Zhou said: "the mainland wanted to work with Taiwan, but cooperation had been hampered by the repeated attempts at 'Taiwan independence'. We will continue to work in that direction (of pushing cross-Straits financial service exchanges)."

(China Daily March 13, 2007)