Now Beijing tells it like it is when fears of financial risk arise
The no-nonsense approach being taken by economic experts is warmly welcomed, and reflects the transparency required at times of uncertainty
China’s financial regulators have had a habit of using market-related metaphors such as “black swan” and “grey rhino” when referring to the economy. They are terms lost on most people, leading to a lack of understanding about the nation’s challenges. The frank and straightforward language of former finance minister Lou Jiwei in recent remarks assessing the risks is therefore welcome. Given the country’s importance to the global economy, his no-nonsense approach is what Chinese and the world need to hear.
Lou, the chairman of the National Social Security Fund Council, told a forum in Beijing that the financial system had become “severely distorted”, exemplified by the high cost of financing despite a loose monetary environment. The result was that the likelihood of “China generating systematic financial risks is pretty big”. Putting circumstances in a context familiar to the West, he believed the threat could be worse than that faced by the United States before the global financial crisis in 2008.
The outlook was in line with that laid out by Liu He, the economic mastermind of President Xi Jinping, in a speech at the World Economic Forum in Davos last month.
Financial risk was once rarely, if at all, spoken about by officials. Their focus was on growth and targets, and threats such as bankruptcies and loan defaults were never mentioned.
But a slowing economy and a weak global recovery heightened the need for reforms to switch the economy from being export-driven to consumer based. Authorities are alert to the risks and less reticent about acknowledging them and what protective measures are needed.
Xi and other top officials have since late 2016 devoted numerous speeches to the topic. The State Council established the Financial Stability and Development Commission seven months ago to better coordinate the work of financial regulators. Substantial policy changes have resulted from high-level scrutiny and looming threats, among them the possibility of the United States launching a trade war, a bubble in the housing market and bad bank loans.
The acknowledged response is unswerving dedication to reform and, in coming years, that will mean further economic restructuring, relying less on injections of credit, reducing debts and eliminating risks.
Managing the financial risks has become a priority. High growth at any cost has been counterproductive for China and with a focus on stability, attention is firmly on continuing the anti-corruption drive, clamping down on irregularities and pushing reforms.
No longer are words being minced; in the name of transparency, Beijing is telling it like it is.