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Guo Shuqing, right, and Zhou Xiaochuan, center, at a session of the 19th National Congress of the Communist Party of China on Oct. 19. (Photo by Akira Kodaka)
Economy

China keeps eye on corporate, local government debt

Regulators focus on deleveraging campaign, limiting banking systemic risks

BEIJING-- Chinese regulators said Thursday they would continue to rein in debt, emphasizing mismanagement by local governments, as concerns over the country's financial risks mount.

"We will prevent a Minsky moment," China's outgoing central bank Governor Zhou Xiaochuan said at a meeting of delegates from financial institutions during the Chinese Communist Party congress. A Minsky moment, named after American economist Hyman Minsky, refers to the sudden collapse of asset prices in an economic downturn as investors pulled out investments upon realization that debt levels were unsustainable.

Zhou said that corporate debt in China was "especially high," while household debt was accumulating at increasing speed over the past few years. He said though, the levels were not alarmingly high compared with those of other countries.

"Local governments could be masking their borrowings as corporate debt, so we have to seriously prevent local governments from undermining fiscal discipline and borrowing more than their limits allow and engaging in unhealthy behavior," the official said.

In late September, S&P cut China's credit ratings by one notch to A+, still investment-grade, for the first time since 1999 on concerns over the economic slowdown and rising debt.

China Banking Regulatory Commission Chairman Guo Shuqing, one of the candidates in the running for Zhou's job, also said that regulators will continue to tighten control over the banking sector to limit risk. He said they would focus on shadow banking, real estate bubbles, and local government debt level this year.

Separately, Zhou said that further liberalization of the yuan was not a key policy focus now. "It will be a long process for the renminbi to become a freely floating currency. We have gained significant progress in the past but we have not completed the journey and we will continue to push forward. Timeline wise, There is no specific timetable."

He added: "The floating range rarely restricts supply and demand. Sometimes widening the range in fact would be a signal for opening up the economy and allowing the market to decide exchange rates, but it is not an issue we are most concerned with at the moment."

Zhou added that opening up the economy included other dimensions such boosting access to stock markets.

As Zhou left the session, reporters asked who was likely to succeed him. "Who do you think will succeed me?" Zhou retorted. Reuters reported that Zhou  confirmed he was to retire soon.

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