In its annual macroeconomic policy assessment report, released online on Thursday, the Chinese Academy of Social Sciences’ Institute of Economics warned that systemic financial risks and instability were rising, while some small- and medium-sized financial institutions faced threats to their liquidity.
“As for now and the foreseeable future, it is necessary not only to prevent the risk of excessively rising macro leverage ratios, but also to guard against the risk of deleveraging caused by large fluctuations in housing prices,” it said.
As part of efforts to contain that risk, the authorities have announced plans to restructure the regulatory regime, including the creation of a national financial regulatory administration.
Raymond Yeung, chief Greater China economist at ANZ Bank, said: “The institutional reshuffle has strengthened Beijing’s direct control of the whole financial system.
“It is also a sign that de-risking will enjoy a high priority over the coming years.”
At the same time, Chinese authorities have tried to retain foreign investment amid efforts by the United States to step up technological containment and economic decoupling.
Overseas investors owned about 3.2 trillion yuan (US$461 billion) of the A-share market by the end of last year, or about 4 per cent of the total, while they also owned 3.39 trillion yuan of Chinese bonds – or 2.7 per cent of the total.
But the Chinese authorities have also stepped up criticism of US dollar “hegemony” and are developing a yuan-denominated payment system and a central bank digital currency and promoting greater use of the Chinese currency among countries involved in its Belt and Road Initiative.
Regulators are expected to continue de-risking in key institutions this year as bad assets have accumulated, take concerted regulatory action with the enactment of a financial stability law this year, and monitor potential negative spillover effects from international markets closely, according to a report released by Bank of China on Thursday.
Externally, “China should speed up the establishment of dynamic response plans and continue to improve the risk monitoring and early warning system”, it said.
This article was first published on SCMP.