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New China growth model to hinge less on credit, central bank governor says

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New China growth model to hinge less on credit, central bank governor says

People's Bank of China Governor Zhou Xiaochuan said China could consider cutting back on credit as it pursues higher-quality growth and called for the acceleration of market access reforms, according to media reports.

"When we're pursuing quality-oriented growth, we'll depend less heavily on the credit-based growth model ... We can use capital in the broad money supply more efficiently," Zhou was quoted by Bloomberg News as saying March 9 during the National People's Congress.

China is focused on stabilizing and gradually reducing leverage, with reforms for better financial supervision in the pipeline and the central bank set to take a greater role in this area.

The governor pointed to the moderation in China's broad M2 money supply growth in 2017 as a sign of progress in reducing financial system risks. Central bank data showed M2 growth was 8.8% year over year in February, higher than January's 8.6% rise, but lower than the 11.1% increase in the year-ago period.

"Everybody should see that China has entered a stabilizing leverage and is gradually reducing the leverage situation. The trends are clear," Zhou said, according to Reuters.

The process of yuan globalization to be gradual, he said, noting that efforts can be intensified once capital account restrictions have been lifted.

Zhou's deputies added that Chinese authorities will allow more convertibility in the capital account thanks to more balanced cross-border flows. They noted that the country is gradually exiting counter-cyclical management of the foreign-exchange market and capital flows.

Premier Li Keqiang said in his report to China's congress March 5 that the country will deepen foreign exchange market reform and the yuan should be kept at "relatively stable" levels. The yuan has seen its rally against the dollar slow down amid a more hawkish outlook for the Federal Reserve, and also faces downward pressure from rising China-U.S. trade tensions.