September 13, 2017 2:03 am JST

Chinese premier on guard against financial risks

Li stresses economy's overall health in roundtable with global organizations

ISSAKU HARADA, Nikkei staff writer

Chinese Premier Li Keqiang, left, speaks during a Tuesday news conference as International Monetary Fund Managing Director Christine Lagarde listens. © AP

BEIJING -- While China's financial system is generally sound and stable, the government is still keeping a close eye on certain high-risk areas, Premier Li Keqiang told reporters Tuesday after a meeting with leaders from six international institutions.

Li hosted the roundtable with the heads of the World Bank, the International Monetary Fund, the International Labor Organization, the World Trade Organization, the Organization for Economic Cooperation and Development, and the Financial Stability Board. The closed-door meeting at the Diaoyutai State Guesthouse here followed a similar affair last year.

The premier expressed confidence that the government's full-year growth target of around 6.5% will be achieved, noting that the economy expanded 6.9% on the year in the first half and that this momentum has not changed in the last few months. Roundtable attendees acknowledged progress on China's efforts to transform its economic structure and called for more of the same going forward, Li said.

Also discussed were the risks posed by mounting local-government debt and weak spots in the financial system. Concerns were raised about small and midsize banks increasing borrowing in the market and using the funds to boost investments, such as in bonds and other debt instruments issued by infrastructure companies with ties to local governments. The tangled capital flows in the nation's 60 trillion yuan ($9.17 trillion) wealth management products market were also cause for concern.

Such risks "will be resolved gradually," explained Li, who said the government has no plans for sweeping policy changes to address them.

These issues are not about to spark a financial crisis, the premier asserted. The Chinese government's budget deficit amounts to just 3% of gross domestic product, and banks' capital ratios and loan-loss provisions exceed international standards, he said.

The IMF welcomes China's efforts to tame risks in its financial system, Managing Director Christine Lagarde said. But she warned that the country's debt-driven growth has heightened medium-term risks even as short-term risks have faded. Lagarde recommended expanded social security spending to boost consumption, a larger role for market forces, reduction of corporate-sector debt, and focusing more on the quality and sustainability of economic growth rather than the scale of expansion.

China is playing a leading role in the shift away from fragile shadow banking in favor of market-based finance, said Bank of England Gov. Mark Carney, who chairs the FSB. He applauded the nation's tightening of interbank credit and initiative toward shrinking the shadow banking sector.

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