Several financial institutions have cut their forecasts for China's 2013 and 2014 growth amid the worst cash crunch in the interbank market in nearly a decade.

Cao Yuanzheng, chief economist of BOC, said the liquidity problems are temporary and won't affect the real economy that much, though they will affect banks' financing costs.

Pu said the causes of the liquidity crunch include a narrowing trade surplus, reflecting less active exports, and an aging population that is drawing down savings to cover living expenses.

Low funding costs in recent years have led to overcapacity and speculation, and the current move to bring funding costs to reasonable levels are also an attempt to squeeze overcapacity and speculation out, he said.

Cao said the most practical way to strike a balance between curbing off-balance-sheet lending expansion and supporting economic growth is to securitize the shadow banking assets and float them transparently in the market.

Policy stability

The State Council on Wednesday reiterated that current economic policies will be maintained, the Xinhua News Agency reported.

China's economic situation is generally stable this year, and the government can steadily proceed with moves to balance short-term growth and structural adjustment.

The meeting focused on accelerating urban redevelopment as a means of driving investment and consumption.

The council said 10 million dwellings in rundown urban areas will be renovated over the next five years.

Xinhua contributed to this story.