BEIJING – China’s financial regulator pledged to continue debt-reduction efforts as Beijing sharpened its rhetoric against rising economic risks during a domestic slowdown.
China has stabilized its overall leverage ratio after the government’s recent yearslong “structural deleveraging” campaign, Wang Zhaoxing, a vice chairman of China Banking and Insurance Regulatory Commission, said at a briefing Monday.
However, debts amassed by companies and local governments over the years are significant potential risks that demand close regulatory attention, he said.
Regulators will remain cautious regarding any lending to sectors deemed risky, Wang said.
“Given increased downward pressure on economic growth, we must step up our efforts to prevent risks,” he said, citing a series of potential problem areas including bad loans by banks, small lenders’ liquidity conditions, and the shadow-banking and property sectors.
China’s central bank and regulators have been pumping funds into the banking system to combat the economic slowdown by way of reductions in banks’ reserve requirement ratio, or the portion of deposits that banks must set aside as reserves, among other measures.
In response to these efforts, China’s new bank loans hit a record high in January and total credit growth also picked up, boosted by short-term loans and bill financing, official data showed.
Commenting on the data, Wang said rapid credit growth last month was “basically normal” against a backdrop of sufficient liquidity. However, some banks may have engaged in arbitrage trading that lead to funds circulating among banks in what he said were “isolated instances.”
Wang said the regulator is investigating banks’ practices in bill financing, while warning of “severe punishments” for any irregularities.
The official emphasized that overall liquidity in China’s financial system is ample and that regulators are focusing on improving credit-transmission mechanisms so that those funds can be channeled to those companies most in need, especially small and private ones.
Also on Monday, the regulator posted guidelines on its website aimed at further easing private companies’ financing difficulties, urging banks to resolve more bad loans so they can have more funds to lend to the private sector.
China should strike a balance between stabilizing growth and fending off financial risks, President Xi Jinping said at a meeting with senior officials, according to a report published Saturday by state-run Xinhua News Agency.
Xi said that a healthy real economy is the foundation for the alleviation of risk. The government should enhance countercyclical adjustments in its monetary and fiscal policies to ensure Chinese economic growth stays within a reasonable range, he said.