New central banker pledges to rein in financial risk

Yi Gang

China’s new central bank governor outlined sweeping plans yesterday to rein in rising debt and financial risk, but expressed confidence that Beijing can prevent potential dangers.

High debt levels for Chinese state-owned companies, local governments and households are “still a challenge,” Yi Gang said at an economic conference. The appearance marked his first extended public appearance following brief remarks to reporters after his appointment last week.

The ruling Communist Party has declared controlling financial risks a priority following a run-up in debt that prompted global rating agencies last year to cut Beijing’s credit rating.

Regulators will “deepen regulatory system reform and enhance its resilience against systemic risk,” Yi said. He said that will include steps to “impose more financial discipline” on government-owned companies, develop a better financing system for local governments and “create a system to prevent risk in the real estate sector.”

“We need to lose no time in adopting guidelines on financial regulation” for specialized entities such as asset management and holding companies that have evolved rapidly, said Yi. Still, he said, with Beijing’s experience and resources, “China is in a good position to mitigate and prevent risks.”

Yi, who earned a Ph.D. in economics from the University of Illinois, succeeded Zhou Xiaochuan, who became China’s most prominent figure in global finance during a record 15-year term as central bank governor. Yi is a two-decade veteran of the bank and is well-known to foreign investors and regulators as director of China’s foreign exchange regulator.

Zhou warned in October that rising debt could have a “severe impact” on the world’s second-largest economy, but told reporters this month during the annual meeting of China’s ceremonial legislature that regulators believed they had debt under control.

Total debt in China swelled to above the equivalent of 270 percent of annual economic output, nearly the level of developed countries, as Beijing relied on infusions of credit to prop up growth following the 2008 crisis. Financial analysts worry that heavy borrowing by local governments and state companies could threaten the stability of the financial system. Previously low debt owed by Chinese households also has begun to rise.

Beijing has begun trying to clear away debt, including by allowing some state companies to give banks stock. But private sector analysts say regulators are moving too slowly.

In February, regulators seized control of one of China’s biggest insurers, Anbang Insurance Group, after its debt load following a multibillion-dollar global spree of asset purchases raised questions about the privately owned company’s financial stability.

Authorities said Anbang’s founder would be prosecuted but have yet to release details.

Other major companies including Wanda Group, which owns Hollywood studio Legendary Entertainment, and HNA Group face questions about whether they can repay billions of dollars borrowed to finance foreign expansion.

“Currently potential risks in China are still reflected in a number of sectors,” said Yi. He cited “persistently high” debt at state companies and said the “surging leverage ratio” among households is a “cause for concern.”

Yi also promised more action to promote international use of China’s tightly controlled currency, the yuan, though he gave no timeline. He repeated official promises to open the state-dominated financial system and allow foreign ownership of banks, but gave no new details. Joe McDonald, Beijing, AP