Domestic demand stimulated

People's Bank of China Governor, Zhou Xiaochuan, seen here, has said China is making progress on stimulating domestic demand, but also signaled the central bank is paying attention to the surge in investment and housing demand.

Demand for housing has been particularly robust, Zhou Xiaochuan said. "But with respect to investment, we must be careful, because there is already an overcapacity problem in some areas."

He added that urbanization is driving the need for investment in China's infrastructure.

Risks are arising from China's stimulus program, underpinned by an unprecedented amount of bank lending, which has led to a rapid rise in fixed-asset investment growth and prices in the local stock and property markets.

The Wall Street Journal reports that  Zhou said there has been major restructuring of Chinese banks after the Asian Financial Crisis, which helped them weather the current global financial crisis. Prior to the restructuring, Chinese banks' toxic assets accounted for 25% or more of their assets.