China's financial reform no easy job

Alarmist analysts warned that the shadow banking system is shaping up to be the country's "Lehman" or "Bear Stearns" moment, likely to trigger a financial crisis similar to the one in 2008 caused by the subprime mortgage crisis in the United States.

However, Chunhua Capital Group Chairman Hu Zuliu argued that shadow banking does not represent a systemic threat.

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China does not have the same high interconnectivity among different regions and sectors, so the risk of an expansive crisis is low, Hu said.

UK Standard Life chairman Gerry Grimstone echoed Hu's argument and believes non-traditional lending can be complementary to traditional financial services if well regulated.

Noting that the growth of shadow banking was fuelled by regulated interest rates on both deposits and lending, Hu said that liberalizing rates and creating a bond market may help ease liquidity pressure.  

Central bank's hand

With global liquidity changes speeding up following US and Europe quantitative easing, pressure for China's central bank to play a positive role in the global market is mounting.

Meanwhile, compared with the central banks of other developed countries, the People's Bank of China (PBoC) has to juggle different priorities and work collaboratively with other ministries to push reform in the country.

"China's central bank has always taken unconventional monetary policies in the past, and that is necessary to facilitate domestic reform on all fronts in the transition period," said Zhou Xiaochuan, governor of PBoC.

Financial stability is the central banks' top priority, Zhou added.

Jiri Smejc, CEO of Home Credit Group Corp, called for proper supervision of commercial financial institutions instead of an over-tight grip, citing the challenges facing burgeoning Internet finance.

"We will do our homework as regulators, and give more respect for the market's choices," Zhou said.

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