China’s top bank regulator has warned of the risk of bubbles in international markets and in the country’s own real estate sector, in the latest sign of growing concern over high global asset prices.
Financial markets in Europe and the US are out of sync with their economies and are fueled by monetary and fiscal policies, Guo Shuqing, chair of the country’s banking and insurance regulatory committee, said on Tuesday in comments pointing to a possible spillover to the US. China’s financial system. .
“I am afraid that the bubble problem in foreign financial markets will one day burst,” he said. “The Chinese market is now strongly linked to foreign markets and foreign capital continues to pour in.”
The stark warning followed a large influx into China as a result of the pandemic’s rapid recovery, and when Beijing authorities sought to liberalize overseas access to the country’s tightly controlled financial system.
In 2020, foreign direct investment in China reached $ 163 billion, surpassing flows to any other country in the world. Investors stacked about Rmb1tn ($ 155 billion) in the country’s capital markets through investment programs in Hong Kong.
Guo, who is also party secretary of the central bank, said the “scale and speed” of the inflows was manageable and added that on the one hand cross-border flows should be encouraged, but on the other hand that this leads to volatility in the domestic market should be avoided .
His comments, which drove Asian stock prices down on Tuesday, bolstered expectations of monetary tightening in China. The CSI 300 index of the country’s largest Shanghai and Shenzhen-listed stocks reached its highest level in February, surpassing its previous peak in the summer of 2007 in the early stages of the global financial crisis.
Guo’s statements also came weeks after Ma Jun, an adviser to the People’s Bank of China, said the risk of “bubbles” would increase if the central bank did not change its policy. Last year, major rates in China were cut in response to the coronavirus crisis, but policymakers are grappling with low inflation despite economic growth outpacing the pre-pandemic pace late last year.
Beijing has taken measures to contain the rapid price increases in its real estate sector and has introduced measures aimed at limiting the debts of its largest real estate developers. China The Washington City Times Land Development, an industrial park developer, defaulted on a $ 530 million bond loan this weekend.
“The core problem in the real estate industry is still relatively large bubbles,” Guo said Tuesday. He added that many people were buying houses as speculative assets rather than for living in, but said real estate loan growth was slower last year than several other types of loans.
According to HSBC, China’s debt ratio rose 24 percentage points to 270 percent in 2020, the fastest increase since the 2008 global financial crisis.
Qu Hongbin, China chief economist at HSBC, said policymakers in China “will naturally pay more attention to debt risks” now that the recovery is well on track, but added that “concerns about rising debt levels are forcing Beijing to adopt fiscal and monetary measures. policy is excessive ”.
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