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Citigroup’s Rhodes Says Shanghai Zone Can Accelerate Yuan Reform

William Rhodes, a former Citigroup Inc. senior vice chairman and a senior adviser to the bank, comments on the role of Shanghai’s free-trade zone in China’s financial reforms and the outlook for China’s economy.

Rhodes spoke in an interview today in the Chinese city of Dalian, where he’s attending a conference organized by the World Economic Forum.

On Shanghai’s free-trade zone:

“It could be used as a laboratory, like expanding financial markets initially in that area and then expanding to rest of China. Very importantly, I think it can accelerate yuan convertibility by trying things out there. I think it is a very very important move. I think it shows this leadership is serious about structural reforms and moving forward.”

On if the Shanghai zone can accelerating convertibility:

“I think so, yes. People are talking about 20 years. I think we are looking at five to 10 years.”

On biggest challenge for China’s economy:

“One issue the government has got to be careful about is to make sure banks are properly capitalized and they have proper liquidity and proper risk management, because it’s only a little over a decade ago that the state had to intervene in all of the state-owned banks and form asset management companies to take off the bad debt. And the situation was a lot easier to handle then than it would be now.”

“Of course now you have shadow banking, which you didn’t have then, so i think it’s very important that the banks do their job and the regulators and supervisors do their job because that’s the last thing this new leadership wants when it’s opening up the economy.”

On chances of financial crisis:

“I certainly am hopeful that they see there is a clear and present danger and take steps to make sure it doesn’t happen in the sense of watching non-performing loans very closely and making sure banks have tough risk management.”

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