ANDREW Sheng, chief advisor to the China Banking Regulatory Commission, said today that China's latest credit crunch which has pushed up interbank money rate to historical highs should not be a surprise when China pushes ahead with moves to liberalize its interest rate.

The tight liquidity is a result of the combination of window-dressing, liquidity need for long-term investment like infrastructure projects, and China's pursuit of the interest rate reform, he told DBS Asian Insights Conference 2013 today in Singapore.

Market players who know the market well should not be surprised on that because when China goes ahead with market-driven interest rates, as it has reiterated several times this year, market will be more volatile, Sheng noted.

The latest liquidity crunch indeed is a signal of authorities' confidence rather than weakness on monetary management. It sent important signals that market should not depend on central bank for offering liquidity, he added.

While Luo Xi, Senior Executive Vice President of Industrial and Commercial Bank of China, also said at the forum that off-balance sheet business is unlikely to hit China's real economy. He played down concerns on China's shadow banking but called more a more transparent disclosure of the segment.