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Chinese financial regulators, both at the central and regional government levels, convened in a video conference on Friday to deliberate on resolving financial risks, as reported in a statement from the People’s Bank of China released on Sunday (August 20, 2023).
During the meeting, participants stressed the need to coordinate financial assistance to tackle local debt risks and to recalibrate policies concerning real estate loans.
In recent times, the fragile financial condition of local governments has hindered the central government’s capacity to bolster the economy through fiscal measures, as highlighted by analysts at Rhodium Group in June.
The decline in land sales due to the property market downturn has also dampened local government revenues.
S&P Global Ratings analysts observed, “China’s ongoing property downturn and COVID restrictions last year have strained the finances of many local governments. This has widened the gap between the country’s prosperous coastal provinces and the poorer inland regions. Investors are increasingly sensitive to the idea that some governments may not be able to rescue their debt-raising vehicles.”
Despite an overall growth slowdown and repeated disappointing economic data in recent months, China has maintained a relatively cautious approach to stimulus. Earlier this year, authorities emphasized their priority of averting financial risks.
The recent weeks have seen Beijing signal a shift in its approach to real estate policies, making targeted moves towards easing.
On Monday, the People’s Bank of China lowered the one-year loan prime rate by 10 basis points to 3.45%, while maintaining the 5-year rate — which serves as the foundation for most mortgages — unchanged from the previous month at 4.2%.
The meeting on Friday marked the assembly of a new cohort of financial policymakers in the context of China’s restructuring of its regulatory system this year.
The People’s Bank of China’s new head and party secretary, Pan Gongsheng, delivered a speech during the meeting, along with deputy leaders from the National Administration of Financial Regulation and the China Securities Regulatory Commission, as per the statement. The details of their discussions were not specified.
Participants in the conference included representatives from major state-owned banks, the Shanghai and Shenzhen stock exchanges, and the administrative office of the Central Financial Commission.
In March, Beijing announced the establishment of the Central Financial Commission to oversee high-level financial stability planning. The administrative office of the commission assumed the duties of the State Council’s Financial Stability and Development Committee, a disbanded group formerly overseen by retired Vice Premier Liu He.
Additionally, the National Administration of Financial Regulation, which effectively replaces the banking and insurance regulator, was instituted this year. The launch event in May was attended by Vice Premier He Lifeng and representatives from the Central Financial Commission’s administrative office, according to state media reports.
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