China 'big risk to global economy'

Business | Reuters and Joyce Chen 13 Sep 2018

The threat that China's financial system poses to the world should not be underestimated, according to experts.

Bank of England governor Mark Carney and Chinese economist Ha Jiming both held similar views on the 10th anniversary of the global financial crisis.

In an interview with the BBC, Carney said that China's financial system poses one of the bigger risks to global financial stability.

A new financial crisis on the scale of that which started in the United States a decade ago could not be ruled out if bankers and regulators grew complacent, Carney warned.

"Could something like this happen again?" he said. "Could there be a trigger for a crisis - if we're complacent, of course it could."

Ha, meanwhile, said that there might be only 10 percent possibility that a crisis will be triggered in the world's second-largest economy this year, but it remained uncertain if that would happen in a few years.

He said the reason why China has survived in the past 10 years, - when debt remained the biggest contributor to GDP - is its high household saving rate.

However, the ratio has been declining, from 34 percent in 2008 to less than 13 percent last year, due to the lack of manpower and high property price.

When banks are less supported by savings, the debt danger for corporates increases, he added.

Meanwhile, the People's Bank of China and China Securities Regulatory Commission announced steps to strengthen supervision of credit-rating businesses in a bid to improve the quality of ratings.

In a joint statement, they listed guidelines for the ratings business to "push forward communication in the bond market, and promote the orderly development of the rating industry."

The guidelines call for unified vetting of ratings agencies in both the interbank and exchange-traded markets.

They also are intended to consolidate and reorganize agencies and to strengthen oversight and information-sharing among regulators.

Last night, PBoC posted that China's total social financing, a broad measure of credit and liquidity in the economy, rose to 1.52 trillion yuan (HK$1.74 trillion) in August from 1.04 trillion yuan in July.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

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