zhou xiaochuan : china ’ s growth enterprise market address by mr zhou xiaochuan, governor of the people ’ s bank of china, at the ceremony marking the first listing on the growth enterprise market ( gem ), shenzhen, 30 october 2009. * * * distinguished guests, dear friends, ladies and gentlemen, good morning! it is a great pleasure to attend this gathering at the invitation of shenzhen stock exchange and the 28 companies. today, the growth enterprise market will see the listing of the first 28 companies, which is an event long awaited by the financial community, the scientific and technological circle and entrepreneurs. on this occasion, i would like to extend sincere congratulations to the successful launch of the gem in my own name and on behalf of the people ’ s bank of china. in the 1970 ’ s, the growth enterprise market was designed to accommodate vigorous scientific and technological innovation and the boom of start - ups around the world. after three decades of development and especially after the test of this international financial crisis, the gem is again, showing great vitality. the gem in china does not come easy. years of comparison and analysis of international experiences, policy and system and repeated feasibility studies have finally led to the successful listing of the first 28 companies on the gem. therefore, my thanks go to everyone who contributed to this long process. the pbc and the financial community have been watching and actively supporting the development of the capital market and the launch of gem. direct financing should accelerate its pace of development to account for a larger share in financing. we advocate healthy development of the market and have been supportive of reforming the issuance and pricing mechanism on the capital market. the whole financial community attaches great importance to the role of capital market in financing by smes and innovative enterprises, especially hitech enterprises and growth enterprises. the development of gem is consistent with the scientific outlook of development. the pbc and the financial community will continue to support the advancement of the gem in the future. at present, china ’ s economy is at the key juncture of stabilization and recovery. in accordance with the overall arrangements of the cpc central committee and the state council, we will try to strike a balance between maintaining stable and relatively rapid development of the economy, economic restructuring and managing inflationary expectation. in order to keep the consistency and stability of macroeconomic policies, we will continue to implement the relatively loose monetary policy. the intensity and pace of the monetary policy conduct will be carefully handled to enhance the flexibility and

policy. but for the world as a whole, which in itself is a closed economy in which overall monetary policy affects growth and inflation, monetary policy became too expansionary. this resulted in strong gdp growth and rapidly increasing prices for crude oil and other commodities, as well as a rapid credit expansion and rising asset prices, above all for housing in certain regions. this ultimately led to the financial crisis when the housingprice bubble burst. now, you may say that it is rather pointless to criticise something with hindsight. it is easy to say now what should have been done then. however, my point is not to criticise what was done but to learn from history. even today, we can see the same pattern : that is an expansionary monetary policy for the world as a whole, strong growth and rising energy and commodity prices. sweden my view, with hindsight, is that monetary policy in sweden was also too expansionary in the years preceding the financial crisis. the repo rate was gradually reduced to 1. 5 per cent in july 2005. i think it was reduced too much and was too low for too long. both the nominal and the real short - term rates were lower than normal for most of the period leading up to the crisis. in my opinion, a normal level for the nominal short - term rate is around 4 per cent, while a normal level for the real short - term rate is around 2 per cent1 ( see figure 5 ). swedish economic growth was high in the years before the crisis. resource utilisation was also higher than normal. the gdp gap was positive, while unemployment was lower than the average for the preceding years. inflation was nevertheless low in the period 2004 – 2006. measured in terms of the cpif2 and in terms of the measure used at that time, the cpix, 3 it sveriges riksbank, “ what is a normal repo rate? ”, article in monetary policy report, february 2010. the cpif is calculated as the cpi with a fixed mortgage rate and is thus not directly affected by changes in mortgage rates. the cpix excludes households ’ mortgage interest expenditure and the direct effects of changes in indirect taxes and subsidies from the cpi. bis central bankers ’ speeches was well below 2 per cent. in their evaluation of swedish monetary policy in the period 1995 – 2005, giavazzi and mishkin say that this was a sign that monetary policy had been too tight from the beginning of 2002.