China considers methods to handle monetary dangers related to inflows

BEIJING / SHANGHAI / WASHINGTON (March 2): China is exploring methods to handle capital inflows to keep away from home market turmoil, as authorities “very involved” concerning the danger of bubbles bursting in overseas markets, mentioned its fundamental banking and insurance coverage regulator mentioned on Tuesday.

World markets are beginning to see the negative effects of fiscal and financial coverage measures in response to the Covid-19 pandemic, Guo Shuqing, head of China’s Banking and Insurance coverage Regulatory Fee, mentioned at a convention hurry.

“Monetary markets are buying and selling at excessive ranges in Europe, the USA and different developed international locations, which works towards the true economic system,” Guo added.

Because the economic system has change into extremely globalized, overseas capital coming into China will enhance dramatically as a result of financial restoration and enticing asset costs, Guo mentioned.

“The monetary markets ought to mirror the state of affairs of the true economic system, if there’s a large hole between the 2, issues will come up and the markets can be compelled to regulate. So we’re very nervous concerning the monetary markets, specifically the danger of the bubble bursting. overseas monetary belongings. “

China’s benchmark inventory indexes returned earlier good points and the yuan weakened after Guo’s remarks.

The Shanghai Composite Index and the blue chip CSI300 index misplaced greater than 1% on the shut.

Secure capital inflows amid widening rate of interest differentials between China and different main economies supported the Chinese language foreign money.

Guo additionally highlighted the danger of a bubble as a significant downside going through the Chinese language actual property trade.

“It’s fairly harmful that many individuals purchase homes to not dwell there, however to speculate or speculate.”

If the housing market declines, the worth of properties owned by individuals will undergo large losses, resulting in a vicious cycle of unpaid mortgages and financial chaos, he mentioned.

Mortgage charges might enhance

Guo mentioned China would proceed sure insurance policies, together with pushing banks to surrender some income, to help the true economic system, however he anticipated lending charges to rise this yr together with the hike in charges. market curiosity.

“As a result of market rates of interest have gone up this yr, I anticipate lending charges to rebound as nicely,” Guo mentioned with out additional particulars.

Policymakers will cut back help for the economic system this yr after final yr’s spherical of stimulus measures, however tread cautiously for concern of derailing a restoration that continues to be uneven, as consumption slows and small companies are struggling, politicians mentioned.

The central financial institution is usually anticipated to maintain its benchmark lending fee – the prime lending fee – steady this yr.

“As a way to include monetary dangers, Chinese language leaders are prone to push forward with the duty of stabilizing macroeconomic leverage,” mentioned Ken Cheung, chief Asian foreign money strategist at Mizuho Financial institution in Hong Kong.

“Beginning a cycle of fee hikes may entice extra overseas capital inflows, we imagine the PBOC (Folks’s Financial institution of China) would stabilize leverage by phasing out pandemic lending help packages and tightening laws. “

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