China’s leading banking regulator warns of bad debt and local real estate bubbles for real

© Reuters. FILE PHOTO: People walk in Beijing Central Business District (CBD) on the day of the opening session of the National People’s Congress (NPC) in Beijing, China, March 5, 2021. REUTERS / Tingshu Wang

SHANGHAI (Reuters) – China’s leading banking and insurance regulator said banks should protect themselves from a surge in distressed assets as the country rolls back some of the relief measures taken during the pandemic to help businesses cope with the impact.

In 2020, the central bank encouraged financial institutions to lower interest rates on virus-stricken companies and extend payment deadlines, among other things, to give borrowers a respite during the coronavirus crisis.

“The default rate of some large and medium-sized companies has increased and the credit risks at banking institutions have increased,” Guo Shuqing said via video message at a financial forum in Shanghai.

He said a growing trend of local property bubbles remains “serious.”

According to the Institute of International Finance, corporate bond defaults in China have skyrocketed in recent years, reaching $ 14 billion in 2020. Chinese banks issued a record $ 3 trillion in new loans in 2020, according to data from the People’s Bank of China.

Investors should also be aware of potential investment losses in financial derivatives, commodity-linked futures and rising Ponzi schemes, Guo said.

The regulator will also vigorously clean up illegal securities issues and stave off the increase in shadow banking activity, Guo added.

Regarding global markets, Guo, who is also the head of the Communist Party at the central bank, said that monetary policy in some developed countries is “unprecedentedly loose”.

“These measures have stabilized the market (in the short term) but require that all countries in the world share responsibility for the negative effects,” he said.

A spike in global inflation has arrived and could take longer than some of the US and European experts anticipated, Guo added.

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