BoE boss has one-sided view of China
Awarning by Bank of England (BoE) Governor Mark Carney calling China “a risk to the global economy” in relation to the financial sector is essentially lopsided. Risks in China’s financial system are controllable overall and pose no risk to global financial stability.
In a recent interview with the BBC to mark the 10th anniversary of the global financial crisis of 2008, Carney said that “one of the bigger risks to the global economy are developments in China.”
Referring to China as “a great source of growth in the global economy” and “an economic miracle with lots of positives,” the head of the UK’s central bank warned, however, that China’s financial sector “has developed very rapidly, and it has many of the same assumptions that were made in the run-up to the last financial crisis.”
His comments, however authoritative they may sound, fail to consider China’s reality or to look at China’s economic development and financial risks in a comprehensive manner. In objective terms, China’s financial sector has yet to accumulate new risks, while existing risks in the system are being gradually defused, posing no risk to global financial stability.
To start with, China’s institutional advantages in managing risks are evident. History shows that major financial risks were not caused by China. Compared with developed economies’ radical approaches to handling risks, China has stuck to the principle that risks are supposed to be dealt with in an orderly fashion, pointing to the country’s mastery of well-paced risk prevention.
Further, the Chinese economy remains resilient and there has been a steady improvement in the quality and efficiency of GDP growth. Data from the National Bureau of Statistics shows that the economy expanded 6.7 percent in the second quarter year-on-year, down 0.1 percentage point from the previous quarter, but staying between 6.7 percent and 6.9 percent for the 12th consecutive quarter. This situation bodes well for efforts to address existing risks. So long as the country stays on its current policy path, the dual goals of maintaining stable economic growth and effectively reining in risks will be achieved.
On top of that, some major areas of risk in the Chinese economy have been effectively addressed. For example, the macroeconomic leverage ratio has been on a downward trend. Both shadow banking activities and local government debt have been brought under control. In a May report, the People’s Bank of China (PBC), the central bank, revealed that the economy’s overall leverage rate rose to 250.3 percent in 2017, an increase of a mere 2.7 percentage points from the year before. This compares with an annual ratio growth rate of 13.5 percentage points from 2012 to 2016. Additionally, China is working to establish a long-term mechanism for managing housing market risks. Other than that, the push for internet finance risk prevention continues, and there are also no signs of a bubble in the stock or bond markets. It is obvious that there is very little chance that China will be hit by major risks. The country appears rather confident that it is capable of preventing and addressing major risks, as well as achieving betterquality economic growth.
China’s financial sector has yet to accumulate new risks, while existing risks in the system are being gradually defused, posing no risk to global financial stability.