Further measures needed to rein in financial sector risks, says Zhou
Deepened reform and opening-up are the key measures to proactively control systematic risks in China’s financial sector, promoted by overall coordination between regulatory institutions, central bank governor Zhou Xiaochuan said at the weekend.
The general situation in China’s financial sector is sound, but “it is and will be in a period with high and easy-to-break-out risks”, the governor warned in a statement on the website of the People’s Bank of China.
It is the first time since the 19th National Congress of the Communist Party of China that the country’s top financial regulator has discussed the level of systematic financial risks, and suggested detailed reform measures to solve long-term problems.
Zhou said the risks were especially in terms of a high-leveraging ratio and liquidity, arising from over-borrowing by non-financial sectors, resulting in the high local government debt burden while fueling price bubbles in the equity and real estate markets.
By the end of 2016, the country’s total debt to GDP ratio was 247 percent, while it was 165 percent for corporate debt, higher than the internationally accepted risk level, partly due to the slow debt disposition of “zombie companies”, which are usually unviable businesses with overcapacity and relying on bank loans to survive, according to the statement.
Zhou said monetary policy would focus on stabilizing economic growth as well as maintaining a relatively stable rate of inflation.
“In terms of the regulation of financial holding companies, we will strictly limit and standardize non-financial companies’ investment in financial institutions,” it said.
“The stock issuing system will be reformed to reduce government intervention in pricing and crack down on corruption.”
In addition, the market access threshold will be lower for foreign financial institutions, aiming to introduce competition and to meet global financial standards.
A regulatory framework will be established to strengthen coordination between different regulatory institutions, taking advantage of the central bank’s comprehensive supervision ability of cross-market financial businesses, under the management of the State Council Financial Stability and Development Committee, according to Zhou.
Xu Zhong, director of the central bank’s research bureau, said Zhou’s statement was a systematic explanation of the basic development targets of China’s financial sector in accordance with General Secretary Xi Jinping’s report at the 19th CPC National Congress, and it has clarified the main tasks of financial regulation in the near future.
Improving the framework of regulation underpinned by monetary policy, and promoting market-based interest rates and exchange rate reform were highlighted by the report delivered at the congress.
“We will improve the financial regulatory system to forestall systemic financial risks,” the report said.