China’s banking declares victory to curb financial risk

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The risk of a financial meltdown in China’s economy has been largely allayed, a senior industry official said on Tuesday, suggesting the government’s three-year campaign to tackle soaring debt and high-risk lending might be coming to an end.

“The barbaric growth of shadow banking and overheating of real estate financing have been reined in through strengthened supervision,” Wang Zhaoxing, deputy chairman of the China Banking and Insurance Regulatory Commission (CBIRC), said at a press conference.

The authorities’ success in bringing both under control had proven wrong those who predicted it “would trigger a systemic financial meltdown and financial crisis”, he said.

Wang’s upbeat comments came despite the government recently ordering banks and other financial institutions to increase their lending to support economic growth amid a deepening slowdown.

Just last year, Chinese President Xi Jinping made curbing debt one of his top economic policy priorities.

According to a CBIRC handout, debt levels “stabilised” in 2018 after averaging annual growth of more than 10 per cent over the past decade.

“The banking industry has returned to its base and is focusing on its main business [of making loans] to increase support for the real economy,” Wang said.

Despite his confidence, as Beijing has never announced a specific target for its deleveraging campaign and does not release detailed figures for debt levels by economic sector, there remains debate over the actual scale of the debt problem.

According to Zhang Xiaojing, a senior researcher at the Chinese Academy of Social Sciences, the nation’s debt ratio fell to 241.8 per cent of gross domestic product in 2018, from 242.1 per cent a year earlier, which was two percentage points higher than in 2016.

However, the Institute of International Finance, a Washington-based think tank, estimated that China’s total debt surpassed 300 per cent of GDP in the third quarter of 2018.

Xi’s drive to reform the financial system – which had long been regarded as a hotbed for corruption – was born out of the stock market rout in the summer of 2015, which raised serious questions about its stability. In the campaign to clean up the sector that followed, thousands of people were disciplined and even jailed.

Among them was Wu Xiaohui, the former chairman of Anbang Insurance Group, who was sentenced to 18 years in prison in May, and Xiao Jianhua, the Chinese billionaire who after initially vanishing from a luxury Hong Kong hotel during the Lunar New Year holiday in 2017, is now awaiting trial.

In October, the Central Commission for Discipline Inspection, the country’s top anti-corruption agency, announced that Lai Xiaomin, the former chairman of China Huarong Asset Management, had been expelled from the Communist Party and was facing prosecution on a range of charges, from taking bribes to embezzling public property.

Zhou Liang, co-vice chairman of the CBIRC, said earlier that Lai’s case was evidence of the depth of the risk to the financial sector and that regulators must remain on high alert.

“In the next phase, we need to close the regulatory loopholes … to prevent serious crime in the financial market,” he said.

“Not only did Lai bring losses to Huarong, he was a bad influence on its management.”

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