Zhou Xiaochuan: Should maintain a certain level of deposit and loan spreads

According to the China Securities Daily, Zhou Xiaochuan, governor of the PBoC, said 20th that China should maintain a certain level of deposit and loan spreads in financial policy formulation in order to maintain the pressure and power of the financial system to provide services to the real economy.　　He also said that some industries have overcapacity and need to be cautious in investment. Zhou Xiaochuan made the statement at the 2009 Global CEO's annual meeting. When it comes to how the central bank set its price policy, Mr. Zhou said policy makers should consider the pressure and drive to maintain the financial system's services to the real economy. In terms of pressure, competition creates pressure on the one hand, and, on the other hand, maintaining a moderate interest rate, especially deposit rates, with low deposit rates or close to 0 interest rates sometimes reduces the pressure on financial institutions to serve the real economy,　　But only by maintaining a certain amount of pressure can the financial institutions use the money in the real economy to reduce the likelihood of hoarding capital. He also believes that to maintain a certain level of spreads, only moderate spreads will keep financial institutions motivated by the use of capital to profit. If the spreads are too small, it will affect the incentive for financial institutions to give credit for profits.　　Based on these considerations, Mr Zhou said that consideration should be given to maintaining the pressure and motivation of the financial sector to provide services to the real economy in the context of financial market structures and related policies, and to adopt appropriate price mechanisms. Zhou also said that China has made great progress in final consumption, but must be careful in its investment. Because some industries in China already have overcapacity, especially in some conventional manufacturing sectors. Therefore, we must find new growth points in investment.