People’s Bank of China Governor Zhou Xiaochuan explained at a press conference on the sidelines of the National People’s Congress session that the yuan’s exchange rate was stabilizing following the structural reform of the Chinese economy and the resurgence of international confidence. There would be “no big changes” in forex policy this year, but existing polices would be implemented “more delicately”, he said. The yuan exchange rate should be relatively stable this year. He also said fluctuations in the yuan exchange rate in the second half of last year were due to China’s accelerated outbound investments and the surprising result from the U.S. presidential election. On the U.S.-China interest rate difference, Zhou said it was true that in the short-term, money flowed to countries where interest rates were higher. But for the medium-term, countries decide their interest rates based on economic growth, employment, confidence and inflation. Interest rate differences did not necessarily lead to persistent speculation and capital flow, he said, citing the example of Japan, which has kept its rates low for a long time. Financial products should serve the real economy, but there were too many different standards, lots of arbitrage opportunities and too strong speculation in the wealth management product market, Governor Zhou said.

On the opening of China’s bond market, Zhou said Beijing was not implementing any special policies to aggressively pursue the inclusion of yuan-denominated bonds in any index, but was eyeing gradual progress. Pan Gongsheng, Director of the State Administration of Foreign Exchange (SAFE), said China would take measures to make its bond market more attractive. At the end of last year, foreign institutions and firms had issued more than CNY60 billion of so-called panda bonds. Zhou said the recent move to raise money market rates should not be overinterpreted. “A loose policy will not have enough pressure for reform,” he said, adding that financing difficulties would be eased gradually. Zhou said companies with high leverage should reform themselves and banks should not support such companies excessively.

On third-party payment services, Fan Yifei, PBOC Vice Governor, said the sector had accumulated lots of risks amid its rapid development in the past several years. There were many players in the market, leading to over-competition, Fan said. He warned that internal risk control was loose as there was insufficient protection for investors. On fintech, Governor Zhou Xiaochuan said the development of technology would lead to big changes of future payment services. China encouraged the development of financial technology, especially internet technology and virtual currency, and would cooperate with industry participants, he said. The PBOC would also try to prevent risks that might hamper the sector’s healthy development.

The 12% M2 monetary growth target set in this year’s government work report was an expectation, not a task, the central bank governor said. “We will fine-tune financing and loans when necessary,” he said. The decline of China’s foreign reserves from their peak of USD4 trillion to USD3 trillion was “not bad”, he said, adding that reserves were meant to be used and that people should not overreact. The decline was also partly a result of capital that had flowed into China following the financial crisis in 2008, now flowing back out, according to the central banker.

At the end of the press conference, Zhou, who is 69 and already past retirement age, refused to answer a question about his possible retirement this year after being central bank Governor for more than 14 years. Zhou created a buzz among the journalists attending the press conference by wearing an Apple watch, the South China Morning Post reports.