China's financial risks under control but scrutiny of external threats needed


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China's financial risks under control but scrutiny of external threats needed


Source: Global Times    Published: 2018-11-04

External factors such as a big drop in the US stock market might be a risk that could endanger China's financial stability, analysts said on Sunday.

The comments came after the People's Bank of China (PBC), the central bank, issued its report on China's financial stability on Friday. The report said that the country's economic and financial risks are generally under control and there is no danger of systemic risks.

China's macro-economic and financial policies will be more forward-looking, flexible and coordinated in 2019, according to the report.

But the report did warn of financial risks related to local government debt, housing loans and shadow banking, and said financial risks related to "grey rhino" events - ones that are highly probable but largely neglected - may surface.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Sunday that tightened scrutiny of asset management products, channeling of funds to support the real economy and continuity of prudent monetary policy were among the main achievements in the past year.

More transparency

In the report, the PBC also released its first financial institutions ratings report, which covers 4,327 financial institutions.

About 87.5 percent of the institutions were rated three to seven, on a scale of one to 10, with 10 representing the riskiest. About 10 percent of the financial institutions had rankings of eight or higher, said the Xinhua News Agency.

The country is also expected to unveil new rules for financial holding groups in the first half of 2019, in order to boost regulatory oversight of a fast-growing but potentially risky area, according to the PBC.

A pilot regulation scheme has been launched involving five financial holding companies, including China Merchants Group and Ant Financial, in order to build up experience for the new rules, said Zhou Xuedong, a senior PBC official.

Wan Zhe, chief economist with the International Cooperation Center under the National Development and Reform Commission, said releasing the ratings is a positive step as it will help to create certainty and transparency in the market. "In the past, pessimistic market sentiment has sometimes been disproportionate, partly due to a lack of transparency, and any efforts to increase transparency and openness will increase stability," Wan said.

External factors

"It remains to be seen whether the impact of the China-US trade war will hit the Chinese real economy or cause a chain effect that may harm China's financial stability in 2019," Dong said.

There are mounting risks that could affect global financial stability and the trade friction started by the US will have a negative impact on the global economy as well as China's macro economy and financial markets, the PBC report said. Any adjustments to US monetary policy will also have a spillover effect on emerging economies.

"There is a high probability that the US stock market will plunge or see big fluctuations in 2019, and this could affect China's financial stability," Dong said.

Wan said other external factors might include conflicts in some parts of the world and the impact of interest rate hikes by the US Federal Reserve.

Wan urged top financial regulators in Beijing to ensure financial stability not only by enhancing scrutiny but also by enlarging its scope to encompass the new norms in the Chinese economy.

The PBC report called for solid implementation of efforts to ensure stability in areas like employment, the financial sector, foreign trade, foreign investment, domestic investment and market expectations. The efforts need to be coordinated to strike a balance between stabilizing growth, readjusting growth structure and preventing risks.

Wan Zhe is a visiting fellow of Chongyang Institute for Financial Studies at Renmin University of China.