【每日电讯111115】Chinese financial system at risk, warns IMF

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Chinese financial system at risk, warns IMF
China's financial system is at risk from bad loans, booming private lending   and sharp falls in property prices, the International Monetary Fund (IMF)   has warned, as it called for sweeping reforms. 原文链接：http://www.telegraph.co.uk/finance/china-business/8890434/Chinese-financial-system-at-risk-warns-IMF.html
                                                                                       The fund also called on Beijing to relax its control of the yuan currency and allow the central bank more freedom over policy decisions Photo: AP

In its first formal evaluation of China's financial system, the   Washington-based lender blamed "heavy" government involvement in the   country's banks and watchdogs for reducing market discipline and corporate   governance.

The fund also called on Beijing to relax its control of the yuan currency and   allow the central bank more freedom over policy decisions.

Rampant lending since the 2008 financial crisis has left many companies and   local governments in China with huge debts, while a recent slowdown in   economic growth and falling property prices have fuelled fears of an   explosion in defaults.

While China's financial sector was "robust overall", inefficient credit   allocation and other weaknesses needed to be addressed, said Jonathan   Fiechter, deputy director of the IMF Monetary and Capital Markets   Department.

"While the existing structure fosters high savings and high levels of   liquidity, it also creates the risk of capital misallocation and the   formation of bubbles, especially in real estate," said Fiechter.

        
                         China is one of 25 "systemically important countries" that has agreed to   mandatory evaluations at least once every five years, the IMF said, though   Beijing has no obligation to implement the recommended reforms.
However, it added that a full assessment of the risks was hampered by "data   gaps", limited information and restrictions on access to confidential   figures, the IMF said.
The central bank said the IMF report made "objective and positive" overall   assessments but some of the recommendations required "in-depth study",   taking into account China's situation.
In a list of 29 key recommendations on how Beijing can improve its financial   system the IMF urged policymakers to allow state-owned banks to make lending   decisions based on commercial risk rather than government policy.
It also called on Beijing to allow interest rates to be determined by "supply   and demand", and to use this tool rather than administrative measures to   control credit.
The People's Bank of China has raised interest rates five times since October   2010 but it has been reluctant to hike rates too aggressively for fear of   triggering defaults.
China has instead relied on several increases in the reserve requirement ratio   - the portion of deposits banks must set aside - to curb lending, which   Fiechter told reporters was a "pretty crude tool that may promote shadow   banking".
Local government debt has ballooned since Beijing ordered banks to boost   lending to combat the 2008 global crisis, with official estimates putting   the borrowings at 10.7 trillion yuan at the end of 2010 - or about 27pc of   China's 2010 gross domestic product.
But in the past 12 months, as authorities tried to stem the flow of credit to   curb surging inflation and property prices, underground lending flourished   and is worth an estimated four trillion yuan.
The IMF also called on authorities to loosen currency controls and give   autonomy to the central bank and other supervisory bodies to "help bring the   system more in line with international practices".
Despite numerous vulnerabilities in the system, the IMF said stress tests of   China's 17 largest banks found most of them would be resilient to "isolated   shocks".
But a confluence of events such as a slump in property prices - which have   already started to fall nationwide - changes in the exchange rate and a   sharp slowdown in economic growth could "severely" impact the sector, it   warned.

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