Policy moves boost long-term stability

The creation of a new financial stability committee and a top policymakers' pledge to strengthen regulation at the national financial meeting will help resolve potential systemic risks and support the long-term stability of China's financial sector, a senior official and experts said on Tuesday.

Lu Lei, head of the financial stability bureau of the People's Bank of China, said the new regulatory body will help to coordinate China's monetary, fiscal and industrial policies and address the lack of supervision in the country's financial markets.

While overall risks in China's financial sector are under control, risks in non-performing loans, shadow banking, the property market and the online financial market have been increasing, Lu said in an interview with People's Daily.

President Xi Jinping announced that China will set up a committee under the State Council to oversee financial stability and development at a two-day National Financial Work Conference that ended on Saturday.

Lu said the committee will help strengthen regulatory coordination and contain systemic risks while ensuring the sound development of China's financial system and its ability to serve the real economy.

China's central bank said on Tuesday that it will maintain a prudent monetary policy and fulfill its responsibilities at the new financial stability committee to resolve risks and improve regulation coordination.

Hu Yifan, chief China economist at UBS Wealth Management, said the financial meeting reflected that maintaining financial stability is a key priority for China's leadership, adding that the central bank will take a more prominent role in conducting risk assessments and assuming more executive supervision over financial stability.

"Stability remains above all the priority for the leadership ... as 'risk' was highlighted frequently in the meeting," Hu said.

"Deleveraging efforts will continue in the second half of this year, in our view, but the process should be done in a gradual manner and with more focus on maintaining financial stability," he added.

Economists said that the stable growth of the Chinese economy in the first half of the year will create sufficient room for policy moves to mitigate financial risks and deepen reforms.

"Reviving momentum on the economic and financial reform agenda will be essential to mitigate the build up of risks, particularly in the financial system, and to maintain decent growth beyond the next year or two," said Eswar Prasad, a senior fellow at the Brookings Institution and former head of the IMF's China Division.

David Dollar, a senior fellow of the John L. Thornton China Center in the Brookings Institution, said that the solid growth has enabled the authorities to turn attention to reining in financial risks, which will choke off some bad investments and allow the country to open up the economy more.

The emphasis on stricter regulation and the support for the development of the direct financing market by the policymakers at the financial meeting will also help curb short-term speculation and will in turn be beneficial for the long-term stability of the A-share market, a report by Shanghai Chongyang Investment Co said.