BEIJING: China’s central bank urged commercial banks to properly manage liquidity while reiterating its promise to keep monetary policy stable and to clamp down on risky lending, noting that the world’s second-largest economy has yet to find a stable base for growth.
In its quarterly monetary policy report, the People’s Bank of China (PBOC) said it would step up oversight of lending in risky areas such as the property sector and industries struggling with overcapacity.
The bank is trying to rein in an explosion of off-balance sheet and risky lending as cautious government regulators resist speedier financial reform that would force markets to price risk more realistically.
“We will guide commercial banks to strengthen liquidity and asset liability management,” the PBOC said, to make sure financial institutions are supporting the real economy rather than speculative activity.
Debt is shaping up as a major risk to China’s economy. China’s local governments had amassed some $3 trillion in debt as of the end of June 2013, according to official figures, stirring concerns that any defaults could trigger a financial crisis.
Beyond the publicly acknowledged debt, however, is the question of how much more is hidden in China’s shadow banking sector, with its informal loans and so-called wealth management products that often promise high returns.
The recent near-default of a wealth management product, reportedly prevented by a bailout from a local government, has heightened concerns of systemic risk and moral hazard.
Reuters
