Risk Control, Reforms Dominate China's Future Financial Work

Data Analysis 08:25:16AM Jan 10, 2012 Source:SMM

BEIJING, Jan. 10 -- Controlling risk and deepening financial reforms will top the agenda of Chinese government’s financial work in the years, as worry about a double-dip recession hangs over the global economy.

A series of development plans for the financial sector in the coming five years were laid out during the two-day National Financial Work Conference last week, which is held every five years since 1997.

"China's economy has maintained stable and relatively fast growth with stabilized consumer prices and improvements in people's lives. The financial system is running steadily. The good momentum of economic and social development remains unchanged," Premier Wen Jiabao said.

He pledged to allow market forces a greater say in deciding fund allocation and to more clearly define the government's role.

However, Wen also noted that global financial crisis still spread around the world. "We should strengthen our awareness of risks and responsibilities in order to push financial work to new levels," he added.

RISK PREVENTION AND CONTROL

On account of the slow growth of world economy and upheaval of international financial market, the systemic financial risk became one of the chief topics at the conference.

"Risk-aversion should be the lifeline of our financial work," Wen emphasized, adding that the development of financial innovation should not escape supervision.

Financial oversight will be tightened and improved, and banks should establish a more complete and prudent supervision system, he said.

Wen noted that China will further open up its financial sector to the outside world in an "independent, gradual, safe and win-win" way to ensure the country's economic and financial security.

To the financial institutions, avoiding risk means that they should learn lessons from debt crisis in the western countries and not overdevelop the derivatives, said Zhao Qingming, a finance expert with China Construction Bank.

To keep risk factors under control, Cao Yuanzheng, chief economist with the Bank of China, suggested that commercial banks should offer more security products and spread the risk through transactions in capital markets.

"It will require more regulation of commercial banks' financial products and controlling the amount of assets to curb the expansion of off-balance-sheet assets," Cao said.

TO CONTINUE FINANCIAL REFORMS

The conference proposed to deepen financial reforms and carry forward convertibility of yuan under capital accounts safely, which means that reforms remain the main point of financial work in the future.

Wen voiced his support for the development of financial innovation, also calling a train of financial reforms completed in the past years as "historical milestones."

Wen said China's large commercial banks have remarkably improved their capabilities of guarding against risks.

According to a statement released after the meeting, China's assets in the financial industry totaled 119 trillion yuan (18.8 trillion U.S. dollars) at the end of November 2011, a 149-percent increase from that at the end of 2006.

As of the end of September 2011, the banking capital adequacy ratio stood at 12.3 percent, 5 percentage points higher than that at the end of 2006, while the non-performing loan ratio was 0.9 percent, 6.2 percentage points lower than that at the end of 2006.

Currently, China has signed bilateral currency swap agreements worth more than 1.3 trillion yuan with 14 countries or regions, with 2.6 trillion yuan of cross-border trade being settled in yuan.

EASING LOCAL DEBTS

According to a report of the National Audit Office (NAO), around 259.2 billion yuan of misused funds had been recouped by October 2011, nearly half of the 530.9 billion yuan (about 84.3 billion U.S. dollars) uncovered in the auditing of China's local government debts for the year 2010,.

The majority of China's local government funds are raised through local government financing vehicles (LGFVs), which are mainly set up to fund construction projects and have come under fierce criticism from people alleging they are poorly supervised and managed.

Mentioning the local government financing vehicles (LGFVs) at the financial conference, Wen stressed that local government debts are "generally safe and controllable" in an attempt to dispel worries over possible insolvency of local governments.

Wen said the revenues and spendings through the LGFVs will be included in the government's budget management while a mechanism will be established to control the gross local government debts through a risk-warning arrangement.

To alleviate local governments' financial strains and curb fast-spreading debt risks, China's State Council has allowed four local governments, including Shanghai and Shenzhen, to issue their own bonds.

IMPROVING MACRO-ECONOMIC REGULATION SYSTEM

Wen reiterated a prudent monetary policy for this year and make it more targeted, flexible and forward-looking by maintaining a "reasonable growth" in social financing.

"We have the confidence, capabilities and conditions to move economic development to a new stage," Wen said.

At the end of 2011, the nation's money supply had reached more than 12 trillion yuan (1.9 trillion U.S. dollars), accounting for 180 percent of the total GDP, making it the world's highest ratio.

Li Daokui, a member of the monetary policy committee of China’s central bank, the People's Bank of China (PBOC), said this was too high a rate and would pose a risk if growth continued unabated.

"The systemic financial risk is the biggest worry currently," he warned at an economic forum on Saturday. "Bank lending should not be too loose, otherwise the debt default risk may increase and spark a crisis in the whole financial system."

Xia Bin, a monetary policy advisor to PBOC, said the prudent monetary policy means the government can no longer stimulate the economy with expansionary measures.

"Slowing growth is worldwide," Xia said. "It is not an issue concerning economic cycles, but a natural result of the restructuring of the global economy and the Chinese economy."

Jia Kang, director of the Fiscal Science Research Center of the Ministry of Finance, said, "China is now under systemic financial risk, but it is controllable".

Spending in the coming months will focus on manufacturing, boosting consumption and stabilizing economic growth, Jia said. These will work together with some tax reduction.

"However, the government's financial deficit this year is unlikely to exceed that of 2011," he added.

Risk Control, Reforms Dominate China's Future Financial Work

Data Analysis 08:25:16AM Jan 10, 2012 Source:SMM

BEIJING, Jan. 10 -- Controlling risk and deepening financial reforms will top the agenda of Chinese government’s financial work in the years, as worry about a double-dip recession hangs over the global economy.

A series of development plans for the financial sector in the coming five years were laid out during the two-day National Financial Work Conference last week, which is held every five years since 1997.

"China's economy has maintained stable and relatively fast growth with stabilized consumer prices and improvements in people's lives. The financial system is running steadily. The good momentum of economic and social development remains unchanged," Premier Wen Jiabao said.

He pledged to allow market forces a greater say in deciding fund allocation and to more clearly define the government's role.

However, Wen also noted that global financial crisis still spread around the world. "We should strengthen our awareness of risks and responsibilities in order to push financial work to new levels," he added.

RISK PREVENTION AND CONTROL

On account of the slow growth of world economy and upheaval of international financial market, the systemic financial risk became one of the chief topics at the conference.

"Risk-aversion should be the lifeline of our financial work," Wen emphasized, adding that the development of financial innovation should not escape supervision.

Financial oversight will be tightened and improved, and banks should establish a more complete and prudent supervision system, he said.

Wen noted that China will further open up its financial sector to the outside world in an "independent, gradual, safe and win-win" way to ensure the country's economic and financial security.

To the financial institutions, avoiding risk means that they should learn lessons from debt crisis in the western countries and not overdevelop the derivatives, said Zhao Qingming, a finance expert with China Construction Bank.

To keep risk factors under control, Cao Yuanzheng, chief economist with the Bank of China, suggested that commercial banks should offer more security products and spread the risk through transactions in capital markets.

"It will require more regulation of commercial banks' financial products and controlling the amount of assets to curb the expansion of off-balance-sheet assets," Cao said.

TO CONTINUE FINANCIAL REFORMS

The conference proposed to deepen financial reforms and carry forward convertibility of yuan under capital accounts safely, which means that reforms remain the main point of financial work in the future.

Wen voiced his support for the development of financial innovation, also calling a train of financial reforms completed in the past years as "historical milestones."

Wen said China's large commercial banks have remarkably improved their capabilities of guarding against risks.

According to a statement released after the meeting, China's assets in the financial industry totaled 119 trillion yuan (18.8 trillion U.S. dollars) at the end of November 2011, a 149-percent increase from that at the end of 2006.

As of the end of September 2011, the banking capital adequacy ratio stood at 12.3 percent, 5 percentage points higher than that at the end of 2006, while the non-performing loan ratio was 0.9 percent, 6.2 percentage points lower than that at the end of 2006.

Currently, China has signed bilateral currency swap agreements worth more than 1.3 trillion yuan with 14 countries or regions, with 2.6 trillion yuan of cross-border trade being settled in yuan.

EASING LOCAL DEBTS

According to a report of the National Audit Office (NAO), around 259.2 billion yuan of misused funds had been recouped by October 2011, nearly half of the 530.9 billion yuan (about 84.3 billion U.S. dollars) uncovered in the auditing of China's local government debts for the year 2010,.

The majority of China's local government funds are raised through local government financing vehicles (LGFVs), which are mainly set up to fund construction projects and have come under fierce criticism from people alleging they are poorly supervised and managed.

Mentioning the local government financing vehicles (LGFVs) at the financial conference, Wen stressed that local government debts are "generally safe and controllable" in an attempt to dispel worries over possible insolvency of local governments.

Wen said the revenues and spendings through the LGFVs will be included in the government's budget management while a mechanism will be established to control the gross local government debts through a risk-warning arrangement.

To alleviate local governments' financial strains and curb fast-spreading debt risks, China's State Council has allowed four local governments, including Shanghai and Shenzhen, to issue their own bonds.

IMPROVING MACRO-ECONOMIC REGULATION SYSTEM

Wen reiterated a prudent monetary policy for this year and make it more targeted, flexible and forward-looking by maintaining a "reasonable growth" in social financing.

"We have the confidence, capabilities and conditions to move economic development to a new stage," Wen said.

At the end of 2011, the nation's money supply had reached more than 12 trillion yuan (1.9 trillion U.S. dollars), accounting for 180 percent of the total GDP, making it the world's highest ratio.

Li Daokui, a member of the monetary policy committee of China’s central bank, the People's Bank of China (PBOC), said this was too high a rate and would pose a risk if growth continued unabated.

"The systemic financial risk is the biggest worry currently," he warned at an economic forum on Saturday. "Bank lending should not be too loose, otherwise the debt default risk may increase and spark a crisis in the whole financial system."

Xia Bin, a monetary policy advisor to PBOC, said the prudent monetary policy means the government can no longer stimulate the economy with expansionary measures.

"Slowing growth is worldwide," Xia said. "It is not an issue concerning economic cycles, but a natural result of the restructuring of the global economy and the Chinese economy."

Jia Kang, director of the Fiscal Science Research Center of the Ministry of Finance, said, "China is now under systemic financial risk, but it is controllable".

Spending in the coming months will focus on manufacturing, boosting consumption and stabilizing economic growth, Jia said. These will work together with some tax reduction.

"However, the government's financial deficit this year is unlikely to exceed that of 2011," he added.