China should deleverage economy at proper pace: central bank official

BEIJING -- China should deleverage its economy at a proper pace to ensure the financial sector is under pressure to keep reducing leverage while avoiding being pushed into any systemic financial risks, according to a senior central bank official.

"China's overall leverage level is reasonable but is rising at an alarming pace, especially in the financial sector," Xu Zhong, head of the research bureau of the People's Bank of China, wrote in the latest edition of Caijing Magazine.

Xu pointed out that government over-stimulus and poor corporate management and financial supervision were key factors leading to the rising leverage ratio.

He said that to effectively address the challenge, the government should play down the importance of the GDP growth target to avoid massive short-term stimulus, and stick to prudent and neutral monetary policy while rationalizing fiscal responsibilities between central and local government.

Meanwhile, enterprises, especially state-owned, should make more market-oriented reforms to improve corporate governance and financial performance.

He said China should continue to reform its financial regulatory framework to deal with cross-sector issues and to avoid always leaving the central bank to clean up the mess.

"Financial security is achieved via reforms, not bail-outs," Xu said.