Loose monetary and fiscal policy abroad poses a risk to China, says the head of the best bank watchdog

Europe, the United States and other countries are beginning to see some of the negative effects of lavish government spending and the extremely loose monetary policy they used in the wake of pandemic, said the head of one of China’s top financial regulators on Tuesday.

The financial markets in the United States and developed European countries are doing well, but their real economies are not, says Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC). “Financial markets should reflect what is actually happening in the economy. When there is a big gap, there will be problems, “said Guo a press conference (link in Chinese) about the current situation in the banking and insurance industry.

“That is why we are very worried about the financial markets, especially because the bubble in foreign financial assets could one day burst,” he said.

At the press conference, a reporter asked if Guo was worried about imported inflation. Guo said that foreign capital has increasingly flowed into China as the economy has recovered and asset prices are attractive in the country, Guo said. Meanwhile, Chinese authorities are studying how to manage the inflows to prevent them from causing turbulence in the domestic financial market.

As one of the countries that brought its domestic coronavirus outbreak under control, China has seen its economy steadily recover since lifting its lockdowns. The world’s second largest economy maintained its monetary policy relatively still last year: It did not adopt zero or negative interest rates or any other unusual stimulus policy as quantitative easing.

China was the only major economy to report an expansion, while the US and Europe estimated that their GDP would fall by 2020.

Guo predicted that China’s lending rates are likely to rise this year. His prediction is a confirmation that the country’s monetary policy stance is tightening, which is appropriate given that the economic recovery is on the right track, says Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.

Guo also warned of a bubble forming domestically in China’s real estate market. He said many homebuyers are buying homes as speculative investments rather than as places to live, which has the potential to disrupt the economy if prices start to fall and homebuyers are unable to repay their mortgages.

Last year, Guo said real estate is the biggest “Gray rhino” In China. In January, as it presented its important data for 2021CBIRC promised to strictly implement a new bank loan management mechanism, which was recently rolled out, to cover bank loans to the real estate industry. The regulator also said it would strictly monitor key property developers to ensure they comply new collection rules announced in August.

At the press conference on Tuesday, Guo also commented on fintech and said that internet platforms in the financial companies must meet the same capital adequacy requirements as traditional financial institutions.

China’s financial regulators have intensified scrutiny of fintech companies to limit systematic risks following the sudden shutdown in November of Ant Group’s long-awaited IPO. In response to a media question about Ant Group’s role in the domestic financial market, Guo said that all types of financial companies, in whatever form, should be subject to appropriate laws and regulations.

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Contact reporter Tang Ziyi ([email protected]) and editor Michael Bellart ([email protected])

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