Financial industry in the spotlight

A1 With both broad money supply and total social financing rising substantially in the first five months, in theory, China has sufficient liquidity in the market. Personally, I think the recent cash tension was largely caused by a funding mismatch. The money was not reaching the right place - the real economy.

There were also mismatches between long-term loans and short-term wealth management products, as well as interbank lending among big and small institutions.

The liquidity crunch has been exaggerated and it's just temporary. However, it reminds the banking regulators to closely watch risks to China's liquidity management, and it serves as a warning to commercial banks that have got used to liquidity injections from the central bank that they must be more independent.

A2 China's financial system is overall in good shape despite some hidden risks. The central bank has emphasized the importance of strengthening risk management since last year, while retaining a prudent monetary policy.

Whether in China or abroad, problems usually emerge in businesses that are beyond regulators' oversight. China has put much emphasis on financial innovation, but the question always follows: how to put financial regulation in place shortly after? If not, many problems may occur during the time lag. The big banks are in a relatively good condition, but some small banks face the challenges of managing risks.

A3 To help the financial industry control risks, banking regulators should close regulatory loopholes. Commercial banks need to make their opaque wealth management products more transparent, informing investors about risks. They also need to improve their capability to manage risk, rather than just draw credit from the central bank's liquidity spigots.

The new leadership has recently talked more about rebalancing and upgrading the economy, indicating a higher tolerance for slower economic growth. China's economy has entered a transition period and slower growth will be the price we have to pay.

Regarding the current economic climate, I think China's monetary policy will remain relatively stable.