China | China central bank says debt, financial risks under control

China central bank says debt, financial risks under control

June 27, 2016 7:47 AM (UTC+8)

 

BEIJING (Reuters) – China’s debt and financial risks were under control, the central bank said on Monday, adding that it would continue to implement prudent monetary policy and proactive fiscal policy.

In its 2016 financial stability report, the People’s Bank of China said it would also keep yuan interest rates at a reasonable level.

“Overall credit risks are under control, non-financial corporate debt risks are rising,” it added.

The central bank said it would also “comprehensively” use monetary policy tools, including open market operations, reserve requirement ratios and re-lending to keep liquidity ample.

Global investors are increasingly worried that Beijing’s continued efforts to stimulate economic activity and hit growth targets are driving debt up to unsustainable levels, raising risks to the banking system.

A much-promised campaign to reduce industrial overcapacity could add to the dangers of more bad loans and defaults, while deleveraging – reducing debt burdens – could further weigh on companies and the economy.

The profitability of China’s listed companies in 2015 was generally not high, due to the downward pressure of the economy, the bank added.

Among the 2,862 listed firms in China, 336, or 11.7 percent, reported losses.

“Going forward, as domestic and overseas economic situations get more complicated, and economic restructuring deepens, some listed companies may face more and more operational pressure, while the risk of delisting could gradually surface,” it said. “Potential social and financial risks deserve attention.”

The central bank said some securities firms saw a slump in collateral value amid big stock market swings, with some collateral facing liquidity issues.

The government should strengthen macro prudential management and set up a more mature and effective risk management system for brokerages, to boost their ability to cope with risks in extreme situations, it added.

Regarding the economic outlook, Premier Li Keqiang said earlier on Monday, “So far this year, against the backdrop of slowing growth in the global economy, China’s economic operations remain relatively stable, with growth within a reasonable range.”

A pick-up in Chinese economic activity and company profits in March had fuelled global investors’ hopes that the economy was improving, but May readings were generally soggier, pointing to protracted weakness and the need for further policy support.

While industrial output seems to be steadying and property sales remain strong, growth in fixed-asset investment slowed to a 15-year low in January-May, while private investment was the weakest on record, dimming the outlook for the rest of 2016.

(Reporting by Beijing and Shanghai newsrooms; Writing by Ben Blanchard; Editing by Clarence Fernandez)

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