Risk control a key objective
Maintaining the sustainable development of the financial and real estate sectors and avoiding unexpected risks will be China’s economic policy priorities next year, with these measures seen as key to safeguarding overall economic stability.
The annual Central Economic Work Conference, which sets the economic policy tone for the coming year, ended on Wednesday.
A statement issued after the conference said that the nation will continue to crack down on illegal activities in the financial industry to prevent risks.
In the coming three years, China will seek to foster a “virtuous circle” between the financial sector and the real economy, between the financial sector and the property sector, as well as within the financial system, according to the statement.
The high-level policymakers listed “preventing major risks” as one of the top three of next year’s main tasks. Financial risks, especially from the less-regulated shadow banking businesses and the savage expansion of corporate debt, will be the centerpiece for supervision, and financial deleveraging will continue, as experts said.
They expected that new regulations on asset and wealth management products, liquidity management and interbank businesses will be launched in 2018, along with further measures to complete the macro prudential regulatory framework, led by the People’s Bank of China, the central bank.
“As regulatory tightening continues in the financial sector, commercial banks’ balance sheets will further contract along with the higher financing costs,” said Wu Ge, chief economist with Huarong Securities.
China’s monetary policy is stepping out of the “easing era”, said Wu, as market interest rates have been pushed up, the yuan’s value is rising and the broad money supply growth drops to single digits.
“Major risks” may also arise from the process of cutting overcapacity in some traditional industrial sectors, including coal, iron and steel manufacturing, which usually have incurred huge debts from banks, but the efficiency of investment has been dragged down.
Besides, the real estate market, with the still large amount of housing stocks, could pose major risks to China’s economy should house prices suffer unexpected turbulence.
China will move faster to put in place a housing system that ensures supply through multiple sources, provides housing support through multiple channels, and encourages both housing purchase and renting in 2018, said the statement of the annual Central Economic Work Conference.
A research note from China Index Academy predicted that to prevent potential risks in the real estate sector, policies to curb short-term price rises are unlikely to ease, while the establishment of a long-term mechanism will be accelerated.
In an article in People’s Daily on Wednesday, Finance Minister Xiao Jie wrote saying that to launch a real estate tax will be a crucial part of the next phase of reform, and before that a special law will be introduced first.
“The tax will be charged based on assessed values of commercial and industrial properties, as well as personal residential housing,” Xiao wrote.
...Commercial banks’ balance sheets will further contract along with the higher financing costs.” Wu Ge, chief economist with Huarong Securities