China to focus on tackling deep financial risks in 2017, senior policymaker says

PUBLISHED : Wednesday, 22 February, 2017, 9:02am
UPDATED : Wednesday, 22 February, 2017, 9:02am

Beijing will try to guide market ­expectations and behaviour through structural reforms while fending off systemic financial risks this year, according to a top macroeconomic policymaker.

Speaking in Hong Kong on Tuesday, Yang Weimin, deputy minister of the Office of the Central Leading Group for Finance and Economic Affairs, said conflicts were deeply rooted in the mainland’s economic structure, and they could not be addressed simply with policy tools, such as expanded money supply or economic stimulus packages.

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Despite recording 6.7 per cent growth last year, the economy lacked an inner driver for development, he said.

Private investment, particularly in the manufacturing sector, remained tepid, while financial risks led by growing property speculation were increasing, Yang said.

Low returns on investment and excessive liquidity in the market injected by previous policies had pushed debt to over 250 per cent of gross domestic product.

The financial sector had contributed 8.3 per cent of growth, an “abnormal high” proportion, he said.

China’s economy, which has long been driven by exports and investment, is also struggling with an oversupply of production as global demand falls and investment no longer becomes a growth engine.

The leadership’s main tasks were to push ahead with supply-side structural reform and to keep a close watch on eight types of financial risks, including non-performing loans and high leveraging in the stock market.

“We can tolerate small risks in the financial market, but not systemic ones,” Yang said. “We also need reform to strengthen guidance of market expectations. And we need to be more transparent with our policies.”

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Using market forces to solve economic problems was still a process riddled with inefficiencies, he said. For example, the lack of company bankruptcy procedures had made it difficult to shut state-owned “zombie” firms.

But the breadth of reform had also raised doubts over whether the government was intervening too much in the name of stabilising growth.

“Zombie companies emerged under government protection”, he said, so the government was part of the solution. “But we intend to use more market-driven and legal methods to tackle it.”