China's financial system is increasingly vulnerable: PBoC chief
People's Bank of China's governor Zhou Xiaochuan has said that China's financial system is becoming more and more vulnerable on account of high leverage, calling for reforms and tighter regulations as a countermeasure. Despite the current overall strength of China's financial system, Xiaochuan said that latent risks are rising, including those that are "hidden, complex, sudden, contagions and hazardous".
China's financial system is getting significantly more vulnerable due to high leverage, according to central bank governor Zhou Xiaochuan , who also flagged the need for deeper reforms in the world's second-biggest economy Latent risks are accumulating, including some that are “hidden, complex, sudden, contagious and hazardous,“ even as the overall health of the financial system remains good, Zhou wrote in a lengthy article published on the People's Bank of China 's website late Saturday . The nation should toughen regulation and let markets serve the real economy better, according to Zhou.The government should also open up financial markets by relaxing capital controls and reducing restrictions on nonChinese financial institutions that want to operate on the mainland, he wrote.“High leverage is the ultimate origin of macro financial vulnerability,“ wrote Zhou, 69, who is widely expected to retire soon after a record 15-year tenure. “In sectors of the real economy, this is reflected as excessive debt, and in the financial system, this is reflected as credit that has been expanding too quickly .“Zhou's comments are the latest in a series of blunt warnings, and signal that policy makers remain committed to a campaign to reduce borrowing levels across the economy.Concern that regulators may intensify the deleveraging drive after the twice-a-decade Communist Party Congress has helped push yields on 10year government bonds to a three-year high.Still, measures of credit continue to show expansion, with aggregate financing surging to a six-month high of 1.82 trillion yuan ($274 billion) in September. China's corporate debt surged to 159% of the economy in 2016, compared with 104% 10 years ago, while overall borrowing climbed to 260%.