Editorial | Financial stability law is a timely and positive move
- Amid uncertainty created by domestic market conditions in mainland China and a volatile external environment, the proposed law could provide a more stable environment for major business and investment decisions
Tightening conditions have already led to the postponement of an expansion of a trial of a property tax. Economic growth is likely to remain sluggish because of a slowdown in the property market, prompting questions whether China can maintain the targeted 5.5 per cent rate of expansion this year. At the same time lockdowns to stem the spread of the new Omicron variant of Covid-19 threaten to further strain the finances of heavily indebted local governments, to which the state-dominated banking sector has the largest exposure.
According to the draft, the new committee under Liu will manage a fund for handling systemic financial risks, financed by banks and other operators, with liquidity backup from the People’s Bank of China. If it continues, the pandemic’s resurgence will affect production and consumption, so the new funding arrangements are quite timely in case the economy takes a turn for the worse.
Financial stability has been an abiding priority of policymakers. The central bank, however, says the existing legal framework lacks overall design, with “scattered” provisions, including different regulations at local level. Amid uncertainty created by domestic market conditions and a volatile external environment, the proposed law could provide a more stable environment for major business and investment decisions. In policy terms the central bank has to take into account external conditions such as rising United States interest rates and geopolitical factors. A financial stability law sends a positive signal to the wider economy and markets that the government is acting and mobilising resources to reinforce business sentiment and investment confidence.