China’s authorities aware of financial risks but careful, patient measures needed

By Hu Weijia Source:Global Times Published: 2017/6/20 21:33:39

China has created "the largest macro bubble in our lifetime," the New York Times said recently, citing an analyst at Capital Economics. Although exaggerated rhetoric is often used by Western economists in regard to the Chinese economy, risks in the country's financial system do deserve attention. Financial risks are mounting on the back of the recent surge in the property market and rising corporate debt, and the government is aware of the problem. In fact, curbing risks in the financial sector has become a prominent topic of discussion in China.

People's Bank of China Governor Zhou Xiaochuan said Tuesday in Shanghai that high leverage, low capital and non-performing loans shouldn't be tolerated. The words came after former IMF Deputy Managing Director Zhu Min warned that China is facing a high level of financial risk.

China has a clear understanding of what is really happening in its financial system. Contrary to what some Western media reports claim, the country has strong crisis awareness. China-based think tanks, including the Chinese Academy of Social Sciences, have pushed for extensive research and studies into the worsening financial problems, in the hope of finding an appropriate solution. China has not and will not turn a blind eye to the escalation of financial risk.

At the end of last year, the Chinese authorities made it clear that there would be more emphasis on preventing and controlling financial risk in 2017. The government has stepped up efforts to tighten supervision of stock markets and curb shadow banking to prevent systemic financial risks. We predict that China will continue to make risk management in its financial system a priority for the remainder of this year, and more stringent measures may be launched in the battle to curb financial risk.

However, given that radical and drastic reform often leads to financial turbulence, China's efforts to improve financial regulation should, more realistically, be implemented step by step with patience. China's banking system is now the largest in the world. It will not be easy to make sure the country's increasingly complex financial system runs smoothly.

It seems the government wants to rely on targeted, precise measures, rather than radical reform to curb financial risks, but this may lead to misunderstandings that the authorities are ignoring the major problems. What the government needs to do is to enhance the transparency of its policy-making and communicate better with the market, in order to build up confidence toward China's financial regulations and win the trust of the international community.

The author is a reporter with the Global Times.


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