A member of Chinese People’s Political Consultative Conference (CPPCC) said that 2018 will be a key year for combating systemic financial risk, and that regulators must prevent leverage risk and asset bubble risk from overlapping.
Yang Chengzhang (杨成长), CPPCC member as well as chief economist with Shenwan Hongyuan Securities, made the remarks to China Securities Journal on the eve of annual convening of China’s two national legislative bodies in March, and outlined three key areas for the prevention of financial risk.
According to Yang members of industry must first of all fully recognise the existence of systemic financial risk in China.
“Some institutions and industries are not treating this problem in overall, dynamic or comprehensive terms,” said Yang.
“Some institutions are unwilling to bear the responsibility of controlling risk, and feel that risk will lead to a rise in operating costs.”
The second area highlighted by Yang was the need to prevent leverage risk and asset bubble risk from overlapping, and imp articular the need to prevent asset bubble risk from triggering leverage risk.
Yang finally pointed to the need for appropriate risk control measures following a drop in direct financing via bond issuance due to rising rates.
“In 2017 China adopted a series of measures in response to financial risk, with fairly pronounced results.
“Market interest rates have risen considerably of late, and because yields have risen considerably, this has impacted the issuance of bonds.
“Funds have returned to banks, bank lending has increased, and the direct financing ratio has plunged.
“For this reason, risk control measures must control both risk as well as interest rates.”
Yang also said that state-owned enterprise and regional economies must reduce their leverage levels and that the financial sector needs to rein in cross-sector and excessive investment.