A senior official from the People’s Bank of China (PBOC) has warned of the continued presence of risk for the Chinese financial system, highlighting in particular risk in relation to local government debt, financial holding companies and P2P lending.
In an interview with the Chinese central bank’s official news publication Wang Jingwu (王景武), head of PBOC’s financial stability department, said that “2019 could still be a period of high likelihood of financial risk.”
Wang highlighted in particular the continued presence of “grey rhino” risk in certain areas, including the large volume of hidden local government debt, a rise in the risk of defaults on the bond market, and the presence of property market risk, all of which could be transmitted to financial institutions.
Wang also pointed to risk in relation to financial holding companies and rural village financial institutions, as well as online finance and P2P online lending platforms.
In Wang’s opinion China’s financial markets remain highly sensitive to external shocks with a strong likelihood of risk transmission between financial markets, while black swan events also warrant attention, including the spill-over effects of tighter monetary policy amongst major economies, and the heightened likelihood that global economic growth has hit a peak.
Wang outlined several measures for dealing with risk in the Chinese financial system:
- Upholding the basic approach of structural deleveraging and stabilising the macro-leverage ratio. A focused drive for the deleveraging of state-owned enterprises, firmly containing the growth of hidden local government debt and the orderly disposal of outstanding debt, and the prevention of an excessively rapid rise in household leverage ratios.
- The lawful and orderly disposal of risk in relation to high-risk financial institutions. The establishment of market-based, rule-of-law based mechanisms for the disposal and withdrawal of financial institutions; a continued push for the rectification of online finance, and cooperation with local government and related departments for the disposal of risk in relation to illegal financial institutions and illegal financial activities.
- The maintenance of the stable operation of financial markets. Maintenance of the basic stability of the renminbi exchange rate at a rational balanced level, prevention of cross-market, cross-regional and cross-border risk transmission, and the prevention of unusual fluctuations and resonance on financial markets.
- Effectively balancing the relationship between stable growth and risk prevention, and overall policy coordination. Effectively control stable monetary policy at the macro level and control the pace and vigour of policy release in multiple spheres; avoid policy overlap and resonance.