HONG KONG - China is considering modeling its central banking system on the U.S. Federal Reserve, with reform focusing on the troubled financial sector for the rest of the century, said Zhu Xiaohua, a vice governor of the People's Bank of China.

He said Beijing aimed to limit inflation but could not eliminate it and still achieve high growth.

Mr. Zhu, who was recently recruited to the central bank by Vice Premier Zhu Rongji, was speaking at a closed-door seminar in Hong Kong. A transcript of his speech was published in the Chinese-language Hong Kong Economic Times.

"Reform of the financial system will become the core of China's restructuring in the last years of the century," Mr. Zhu told those attending the seminar at Hong Kong Polytechnic.

Austerity Drive

Vice Premier Zhu, who recently took over the central bank governorship, launched an austerity drive earlier this month to cool economic overheating that has brought roaring inflation and chaos to the banking system.

Mr. Zhu, the vice governor, said he was speaking personally, but his remarks indicate that Beijing believes the long-term solution lies not in central directives but in the reform of a financial system that has fallen far behind the fast-developing economy.

He listed a number areas for improving the central banking system. These included "setting up a comparatively independent system for implementing monetary policy to avoid administrative interference."

"If a monetary reform committee is set up, it could use the Open Market Committee of the U.S. Federal Reserve as a model," he said.

Under the U.S. system, governors of 12 regional Federal Reserve Banks meet in the Open Market Committee to decide monetary policy.

The vice governor said China could be divided into several economic zones, but did not specify a number.

People's Bank of China governors from each zone would sit on the committee to reflect regional differences on economic policy, Mr. Zhu added.

Beijing faces major problems in forcing numerous provincial authorities to follow central government orders to calm economic development.

Mr. Zhu indicated that dealing with only a limited number of regional central bank governors would strengthen the central bank's financial control over the economy. The vice governor also said China should introduce an interest-rate setting system similar to those in developed nations.

Commercial banks should adapt to the demands of international competition by meeting, in three to five years, basic capital adequacy ratios laid down by the Bank for International Settlements, he added.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.