China takes aggressive steps to fend off banking, financial risks


Zhou Yongxin, a PaiPaiDai lender, works at his home office at a suburban area of Shanghai November 23, 2011. REUTERS/Carlos Barria/File Photo

Zhou Yongxin, a PaiPaiDai lender, works at his home office at a suburban area of Shanghai November 23, 2011. REUTERS/Carlos Barria/File Photo

China took aggressive steps on Wednesday to head off signs of growing risks in its financial and banking system, unveiling detailed rules to curb an unruly peer-to-peer (P2P) lending sector and intervening in its money markets.

In the past year, Chinese policymakers have been moving levers to try to keep credit growing at a reasonable pace to underpin the economy, while addressing vulnerable aspects of the financial and banking system.

But sharply increasing debt levels have raised alarm bells, most lately from the International Monetary Fund, about the health of the financial system. The country’s stock market crash last year is still fresh in investors’ minds.

This year, officials have expressed concern about the unraveling of Chinese peer-to-peer (P2P) online lending platforms that they had once hoped would provide a new channel of funding to spur the economy’s growth.

On Wednesday, the banking regulator and other government entities issued measures to curb a sector that has produced a raft of scandals. Almost half of the 4,000-odd lending platforms are “problematic”, the China Banking Regulatory Commission warned.

The measures will probably leave about 200-300 P2P platforms by this time next year, said James Zheng, chief financial officer of Lufax, the top lending platform in China.

“That’s okay because they’re cracking down on all the bad guys,” he said at a conference in Hong Kong. “What doesn’t kill will make you stronger. That’s the case for us.”

The $93 billion P2P lending sector has been a source of funds for individuals and small businesses overlooked by the country’s traditional financial services that prefer big borrowers with better credit history and collateral and links to the government.

But Beijing’s hands-off approach to promote the sector as a form of financial innovation led to a rash of high-profile P2P scandals and frauds.

Ezubao, once China’s biggest P2P lending platform, folded earlier this year after it turned out to be a Ponzi scheme that solicited 50 billion yuan in less than two years from more than 900,000 retail investors through savvy marketing. Retail investors have been unable to get their money back.

Under the new rules, P2P firms cannot sell wealth management products or issue asset-backed securities. They must use third-party banks as custodians of investor funds and will not be permitted to take deposits.

The banking regulator also set a ceiling for borrowers on P2P platforms.

Outstanding loans issued on P2P platforms had reached 621.3 billion yuan ($93.6 billion), data from the regulator showed.

MONEY MARKET SQUEEZE

China’s overall debt has risen rapidly since the global financial crisis. Outstanding debt was $26.56 trillion, or 255 percent of gross domestic product at the end of 2015, according to the Bank for International Settlements.

While debt has played a key role in stimulating and shoring up economic growth, policymakers in China are not unaware of the risks.

The central bank is holding off on cutting bank reserve requirements or interest rates for fear such moves could fuel more cheaper credit, put downward pressure on the yuan and fuel outflows from its mountain of more than $3 trillion in foreign reserves.

That view was solidified in financial markets this week, prompting a sharp selloff in bond futures following a summer rally.

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In turn, that appears to have worried the central bank that too many small banks had jumped on the bond rally using short-term borrowing to fund purchases, traders said.

So on Wednesday, it injected cash into money markets through 14-day reverse repurchases agreements for the first time in six months to show its concern about the rising leverage.

For most of 2016, the People’s Bank of China (PBOC), the central bank, had used the lower interest seven-day rate, with cash injections nearly every day.

“The PBOC appears to be signalling to banks to move away from a reliance on short-term liquidity and head towards more longer-term liquidity,” Jonas Short, head of NSBO Policy Research in Beijing, said in a note.

He said if short-term interest rates continue to tighten, it could hurt China’s small banks.

“There may be potential for a liquidity squeeze for small banks on the horizon,” he said.

The central bank’s injection of money into the financial system using 14-day reverse repos was also taken as a signal by financial markets that further cuts to bank required reserve ratios were unlikely.

Chinese five- and 10-year treasury futures CTFc1 CFTc1 fell on Wednesday. The yuan CNY=CFXS and the benchmark CSI300 equities index .CSI300 both edged lower.

(Reporting by Nathaniel Taplin, Winni Zhou and the Shanghai Newsroom; Shu Zhang in BEIJING and the Beijing Newsroom; Additional reporting by Elzio Barreto in HONG KONG; Writing by Ryan Woo; Editing by Neil Fullick)

Source: Reuters “China takes aggressive steps to fend off banking, financial risks”

Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


One Comment on “China takes aggressive steps to fend off banking, financial risks”

  1. Sentinel says:

    THE COMING COLLAPSE OF U.S. AND THE WORLD

    The U.S has taught the world how to mismanage its economy through abuse and manipulation of its economic/financial policies for the benefit of its ultra rich elites who has hundreds of billions of money invested via their hedge funds vehicles, on Wall Street and Chicago’s stocks and commodities markets.

    The main actor here is the Federal Reserve Bank – a quasi “Government” bank owned by the few big banks in the U.S, in turn owned by the ultra rich 1%. The chairmanship of the FRB, without question, is for this ultra rich 1% to decide, not obama. And the current chairwoman – Ms Yellen – is there, like her predecessors Greenspan and Bernanke, were there to protect and look after the wealth of her benefactors. Hence the monetary policies reducing the interest rates to zero or near zero, and the consequent printing of trillions of unbacked U.S. dolllar notes! Lee Kuan Yew would have turned over in his grave to see exactly such a thing happening that he had warned against to justify his decision against the establishment of a central bank in Singapore and set up instead, a Monetary Authority.

    Mr Greenspan, Mr Bernnke and Ms Yellen are the proverbial monkey putting their hands into the cookie jar which is the U.S. economy to grab the “cookies” for the ultra rich. The lowering of interest rates by Mr Greenspan to such a low level was political and goes against proper and prudent management of the economy. The effect of lowering interest rates was to boost the stock market thus maintaining and enriching the ultra rich and their fund managers. All at the expense of the real economy. By right, they should had practised what Mr Mervyn King the former Bank of England governor, who preached that it is not the job of the government to protect nor mollycoddle the players in the market but to look after the economic system to ensure it is protected and will not collapse. Market players including banks should be allowed to go bankrupted or belly-up. The government is not in the job of rescuing badly managed business entities from doubling up.

    As former Presidential nominee Mr Bernie Sanders discovered, the American government under George Bush and obama spent trillions .. about 1.6 trillion US dollars, to bail out the big banks, insurance and others! A huge mind boggling amount by any standard; The money being from the tax payers.

    What lessons, President Xi and Beijing can learn from this, its hard to say but definitely, aping the U.S. would be the most foolish thing to do. The stock market for one should be managed in a way that is not supposed to benefit the big investors; The Chinese Central Bank should ensure its policies is for the health of the real economy of China, not the very rich investors.

    Secondly, get Chinese money OUT of the U.S. in double quick time, and tell your Chinese nationals investors the same. Liquidate all assets and repatriate all their money home quickly. The ultra rich have already gotten their money out of the market; the current bullish market is likely a camouflage for what is to come – and that is a steep cliff hanging fall, ostensibly triggered by a red-flag war or conflict with China and/or Russia created by the obama and Washington. The blame for the collapse of the US economy and dollar will be blamed on Russia and China and the war and the real cause conveniently diverted and out of the spotlight. And who could that be? The Establishment figures of course, including the ultra rich.

    Russia is proceeding on the right trend to see how it can get out of the system controlled by US and Wall Street. Beijing and China should do likewise. The debt based economic system practised by America’s low life politicians is nothing but a PONZI scheme that when the bubble burst or the music stops, the masses will be left devastated, bankrupted and impoverished overnight. The Establishment guys and the ultra rich meantime, will have already gotten all their monies, assets and other valuables out into safety alrady. And that includes their associate crooks and establishment figures in many many countries all over the world. The “peasants” will be left t eat grass, if not vaporized by the nuclear holocaust that is to come.

    That, my friends is how the story has been written an how it will end.

    Like


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