Chinese Central Bank Disputes Accuracy of IMF’s Debt Assertions

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Beijing has criticised the International Monetary Fund’s latest assessment of China’s economic and financial health, claiming that it fails to accurately reflect the true condition of the country’s banking system.

The IMF just recently released its bi-decennial review of the Chinese economic and financial system, conducting hundreds of meetings with Beijing officials to assemble the most comprehensive assessment of the country’s banking system for an international organisation.

The IMF’s Financial Sector Assessment Program (FSAP) called for China to dial down its ambitious growth targets in order to rein in rampant credit growth, and prevent excessive debt from undermining the stability of the financial system.

“The apparent primary goals of preventing large falls in local jobs and reaching regional growth targets have conflicted with other policy objectives such as financial stability,” said the IMF.

“Regulators should reinforce the primacy of financial stability over development objectives.”

China’s central bank has since swung back at the accuracy of the report, claiming that it fails to provide a sound reflection of the Chinese banking sector.

In a statement released via its official website, the People’s Bank of China said that they believed the the report’s “statements concerning stress testing were unable to comprehensively reflect the results the tests.”

“In actuality, based on the the banking sector stress tests undertaken by the assessment team in accordance with general international practices, assuming extreme circumstances, the core tier 1 capital adequacy ratio of banks accounting for over 65% of total banking sector assets can still be kept above 7%, and China’s financial system displays quite strong risk resistance capability,” said the statement.

“With respect to asset quality of the banking sector, over recent years China’s banking sector has expanded its ability to write off and dispose of non-performing debt, and this is one of the key reasons that NPL ratios have remained at comparatively low levels.

“Since 2017, corporate profits, including state-owned enterprises, have seen a sizeable rebound, and a large amount of local government debt corresponds to assets with future cash returns…the room for underestimation of the NPL ratio is not great.

PBOC nonetheless said that it would pursue concerted efforts to further reform China’s financial sector in future on the basis of the IMF’s key recommendations

“The next step is for the relevant departments of the Chinese government to…absorb the rational recommendations of FSAP, consolidate accomplishments, improve shortcomings,  and continue to promote deepened reform of the financial sector, healthy development, pragmatic risk prevention and strengthening of cooperation and exchange with international organisations, in order to make a greater contribution to preserving the stability of the global financial system.”

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