Chinese central bank pledges it will not change course over financial risk management
- The People’s Bank of China said it would maintain tight financial supervision and continue to strengthen controls
- The pledge comes despite a shrinking shadow banking sector
China’s central bank has pledged there will be no turnaround in the country’s prudent monetary stance and tight financial supervision.
A statement from the People’s Bank of China on Friday indicated that it would continue to target financial risk despite the size of the country’s shadow banking sector being squeezed to an eight-year low in proportion to gross domestic product.
It said regulators had been ordered to offer more policy tools to tackle the financing needs of small businesses, manufacturers and self-employed individuals, which is helpful for social stability.
“We need to constantly strengthen and improve our financial macro-control [measures], insisting on preventing and tackling financial risks,” the bank said.
In a separate meeting hosted by the China Banking and Insurance Regulatory Commission on the same day, its chairman Guo Shuqing said a balance must be struck between economic stabilisation and risk prevention.
“We must defend the bottom line of no systemic financial risks,” he said.
To achieve that goal, Guo vowed to improve regulatory capacity, strengthen enforcement and increase the cost of breaching its rules.
According to the latest quarterly monitor released by Moody’s earlier this week, China’s broad shadow banking assets fell by around 540 billion yuan (US$83.4 billion) in the first quarter of 2021 to 58.7 trillion yuan.
This, together with the quick post-coronavirus economic recovery, significantly reduced the ratio of shadow banking assets as a share of nominal GDP from 58.3 per cent at the end of 2020 to 55.4 per cent, an eight-year low.
“The decline underscores Chinese authorities’ continued focus on reducing shadow banking risks. We expect a further decline in shadow banking assets in the remainder of 2021 amid tightened regulatory scrutiny,” according to the research led by managing director Michael Taylor.
Beijing’s fight against shadow banking, including interbank businesses, underground banks and peer-to-peer lending, started in 2018.
The macro leverage ratio, measured in terms of debt to GDP ratio, is a key parameter for measuring the economy-wide risk.
The central bank said earlier this year that the leverage ratio dropped by 2.6 percentage points in the first quarter to 276.8 per cent, after a jump of 23.5 percentage points in 2020 due to the coronavirus stimulus package.
The National Institution for Finance and Development, a Beijing-based think tank, estimated a decline of three percentage points for this year.
Moody’s said China’s leverage level will gradually stabilise and the government will maintain tight regulation over financial tech giants and microloan companies.
The number of microloan companies fell 8.3 per cent year on year to 6,841 by end-March. Meanwhile, assets under management by Yu’e Bao, a flagship product of Ant Group, fell to a four-year low in the first quarter of 2021, the rating agency said.
Alibaba, Yu’e Bao’s parent company, also owns the South China Morning Post.