Economy

Central Bank of China warns of a swath of financial risks

Beijing- On Thursday, the Central Bank of China warned about the financial risks in the country which have been hoarded over years including the shocks from overseas uncertainties.

However, the risks range from “oscillation” in the stock and fixed income markets to potential bond defaults in real estate companies, Zou Lan, director of the People’s Bank of China’s financial markets as per the report.

Well, the detailed comment highlights the latest warning from high-level officials in China in the last several weeks regarding the domestic market risks. As soon as the S&P 500 has climbed more than 5%, the Shanghai composite has changed little so far.

Pandemic and high volatility in international capital flows have now shocked the domestic market as per Zou.

Zou also said “The stock, bond and commodities markets face oscillation risks. A small number of large-scale enterprise groups are still in a period of risks being exposed, middle and low-quality enterprises still face financing difficulties, and the risk of default is rather high.”

Zou mentioned that the pressure is increasing house prices in some of the “hot” cities is relatively large. Moreover, the potential of debt default and other risks among the highly leveraged medium-sized and small real estate businesses is value paying attention to.

Moreover, the Chinese government the last month announced that it would target GDP growth of more than 6% per year. However, the economists mentioned that the target of the conservative provides policymakers the capability of addressing long-term problems like buildup of debt.

 According to the report from Allianz, at the end of the third quarter of 2020, China’s debt-to-GDP had risen to 285% from an average between 251% in between 2016-2019.

However, among signs that the authorities have started to become serious are domestic risks and some state-owned enterprises defaulted on their debt last year. This is quite rare for the companies whose investors believed had inherent government support.

As per Reuters, in the housing market, Beijing struggled in its efforts to limit speculation. Currently, the new home prices rose by their fastest in five months in February.

On Thursday, in a press conference officials from the People’s Bank of China maintains the monetary policy which might remain stable as well as supportive. Notably, Zou didn’t have any specific details on how the financial risks he mentioned can be addressed.

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