PBOC: NO ‘MINSKY MOMENT’
China to control risks from sudden adjustments to asset bubbles, says Zhou
BEIJING
CHINA will fend off risks from excessive optimism that could lead to a “Minsky Moment”, said central bank governor Zhou Xiaochuan yesterday, adding that corporate debt levels are relatively high and household debt is rising too quickly.
A Minsky Moment is a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures. The theory is named after economist Hyman Minsky.
Zhou’s warnings of potential risks facing the world’s secondlargest economy contrast with the rosier views of most Chinese officials.
“If there are too many procyclical factors in the economy, cyclical fluctuations are magnified and there is excessive optimism during the period, accumulating contradictions that could lead to the so-called Minsky Moment,” Zhou was speaking on the sidelines of China’s 19th Communist Party congress.
“We should focus on preventing a dramatic adjustment,” he said.
China would control risks from sudden adjustments to asset bubbles and would seriously deal with disguised debt of local government financing vehicles, said Zhou.
Still, China’s overall debt levels could decline as long as authorities kept a tight control on credit, he said.
Worries about a rapid build-up in China’s debt prompted S&P Global Ratings to cut China’s sovereign credit rating last month, following a cut by Moody’s in May.
China’s finance ministry said S&P’s downgrade was a “wrong decision”.
The International Monetary Fund (IMF) said in August it expected China’s total non-financial sector debt to rise to almost 300 per cent of its gross domestic product (GDP) by 2022, up from 242 per cent last year.
When asked whether he would retire this year or next, Zhou said: “Either way it’ll be soon.”
The 69-year-old Zhou, the country’s longest-serving central bank chief, has spearheaded financial reforms and boosted the yuan’s global profile.
Sources said earlier Zhou was likely to retire around the time of the annual session of parliament next March, and China’s top banking regulator Guo Shuqing and veteran banker Jiang Chaoliang were front runners to succeed Zhou.
Zhou also said the trading range of the yuan exchange rate was not a key issue at the moment, and that the width of the yuan’s current band rarely constrained supply and demand.
Meanwhile, China’s top banking regulator said the country would further open up its banking system to foreign investors, who have failed to make inroads into the highly regulated sector and seen their market share decline.
“We will give foreign banks more space in the form of their establishment, shareholder qualifications, the percentage of their shareholding and their scope of business,” said Guo Shuqing, chairman of the China Banking Regulatory Commission. Reuters