Experts: Risks need greater attention
Concrete steps required to implement proactive fiscal measures, say analysts
Amid worries over trade tensions and debt risks, a number of key risks need to be tackled through the enhanced coordination of monetary and fiscal policies to avoid market turbulence, according to leading experts advising the nation’s top financial regulators.
While China has achieved much success in implementing reforms, more concrete steps to implement proactive fiscal policies are required, at the time when monetary policies are already “quite prudent and proper”, the experts say.
Former International Monetary Fund deputy managing director Zhu Min said China should be ready to face shocks to the financial sector amid global monetary policy shifts coupled with trade friction with the United States, as future proposed tariffs may bring turbulence to China’s stock market.
In recent months, market sentiment has been affected by US interest rate rises and government efforts to promote deleveraging aiming to fight reckless lending in the shadow banking sector.
Overall, there will be no immediate systematic risks to the fundamentals of the financial system, but work needs to be done to tackle risks by selecting appropriate policy tools to fend them off before they worsen, according to a chief economist with a financial institution who declined to be identified.
To stabilize the financial sector in the short term, China should try to avoid massive currency depreciation, avoid price increases of exports, lower inflationary pressure and keep interest rates at a low level, according to the China Financial Risk and Stability Report released on Wednesday.
By far the overall monetary environment is relatively stable, and there is no further need to implement massive stimulus measures, according to a former official with the nation’s top economic regulator.
He said the key issue is to ensure money can flow to support the non-financial sector.
In recent months, the central bank has stepped up efforts to maintain liquidity stability in the financial sector through its regular open market operations, and has rolled out more measures to support small and medium-sized enterprises.
That leaves room for more “down to earth” fiscal policies to support the economy and deal with debt problems, he said.
Sun Tao, a former economist with the IMF, said in the long run, China needs to improve its labor productivity to help stabilize the overall health of the financial sector, as greater efficiency would help facilitate structural reforms.