Guarding against financial risks

The National Financial Work Conference, which ended in Beijing on Saturday, made containing financial risks one of the country’s top priorities. The meeting, presided over by President Xi Jinping, was held against the backdrop of growing enterprise debt, an overheating real estate market and overcapacity in such sectors as low-end manufacturing.

The debt of nonfinancial enterprises in China reached 170% of GDP in 2016, according to the Organisation for Economic Co-operation and Development. And in its 2017 China Financial Stability Report released early in July, the People’s Bank of China pointed to “the risk of bubbles” emerging in some parts of the country. The report notes that housing loans comprised a quarter of all loans and accounted for 44.8% of all new lending since the start of 2017.

All this, as well as the risks in interbank and off-balance sheet business, prompted the central bank to emphasise the need for strengthened financial regulatory capability and better regulatory co-ordination. Only through guarding against financial risks can a sound and stable financial sector better fulfil its duty and purpose of serving the real economy.

The lack of co-operation among the China Securities Regulatory Commission, the China Banking Regulatory Commission and the China Insurance Regulatory Commission was to blame for some of the problems and potential risks in the financial sector and many believe it has also encouraged regulatory arbitrage and fuelled the growth of risky financial products.

Despite some ringing the alarm bells, the risks in China’s financial sector are controllable. Bad bank loans remain at a low level, liquidity in the market is stable and sound economic growth in the first half of the year means the central bank does not need to continue to expand credit to spur growth, thus providing more leeway for financial reform measures. Beijing, July 17.