Banking Regulator Makes First Reference to Curbing China’s Household Leverage

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The head of the China Banking Regulatory Commission has signalled a shift in the focus of ongoing deleveraging efforts, making reference to the need to contain Chinese household debt levels.

In a recent interview with domestic media Guo Shuqing, CBRC chief and the man slated to head the merged banking and insurance regulator, said that the focal points for future risk prevention and dissolution work would be “reducing corporate leverage and curbing household sector leverage.”

Guo also pointed to the need to “strictly standardise cross-sector financial products, continue to dismantle shadow banking, clear-up and standardise financial holding companies, engage in the orderly disposal of high risk-banking sector financial institutions, deeply rectify various forms of illicit financial behaviour, resolutely contain the trend towards the formation of real estate bubbles, and actively cooperative with local governments to rectify hidden needs.”

Guo’s remarks have raised eyebrows amongst domestic observers, given that they mark the first time in recent history that regulators have made reference to household leverage.

“Reference to curbing [household] leverage doesn’t mean that current household leverage levels are excessively high, but that over the past two years they have risen slightly faster,” said Lian Ping, chief economist of Bank of Communications, to Shanghai Securities Journal.

According to Lian, growth in household leverage levels is certain to decline in 2018, because mortgage growth is set to decline or even see negative growth.

China’s National Institution for Finance & Development (NIFD) expects the rise in household debt to ease as real estate control policies in cities around the country continue to take effect.

NIFD says that household debt likely rose a total of 2.5 percentage points in the first three quarters of last year, and that regulators need to be on the look out for risk created by the use of short-term consumer loans for real estate investment.

Overall, however, NIFD says that China’s household leverage ratio remains low by international standards.

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