Main Chinese banking regulator warns of bad debts and local property bubbles

People walk through Beijing’s Central Business District (CBD) on the opening session day of the National People’s Congress (NPC) in Beijing, China on March 5, 2021. REUTERS / Tingshu Wang

China’s leading banking and insurance regulator has said banks should guard against an increase in non-performing assets as the country rolls back some of the relief measures implemented during the pandemic to help businesses weather the fallout.

In 2020, the central bank encouraged financial institutions to cut rates for companies infected with the virus and extend payment terms, among other measures, to give borrowers some breathing space during the coronavirus crisis.

“The default rate of some large and medium-sized enterprises has increased and credit risks in banking institutions have intensified,” Guo Shuqing said at a financial forum in Shanghai via a video message.

He said the growing trend of local property bubbles remained “serious”.

Corporate bond defaults have risen sharply in China in recent years, reaching $ 14 billion in 2020, according to the Institute of International Finance. Chinese banks made a record $ 3 trillion in new loans in 2020, according to data from the People’s Bank of China.

Investors should also be aware of potential investment losses on financial derivatives, commodity futures and rising Ponzi schemes, Guo said.

The regulator will also resolutely clean up illegal securities issuing activities and delay the resumption of shadow banking activities, Guo added.

Commenting on world markets, Guo, who is also the Communist Party leader at the central bank, said that the monetary policies of some developed countries are “unprecedented.”

“These measures have stabilized the market in the short term but oblige all countries of the world to share the responsibility for the negative effects,” he said.

A rise in global inflation has arrived and may last longer than some US and European experts predicted, Guo added.

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