Zhou Xiaochuan, the governor of China’s central bank — the People’s Bank of China (PBOC) — has sounded yet another alarm about China’s economy. Zhou, 69, who is expected to retire soon, has issued a series of straightforward warnings in recent weeks.
On November 4, the PBOC published an article by Zhou as the main story on its website. In the article, titled “Holding the Bottom Line of No Systemic Financial Risks,” Zhou urged China to beware of “systemic financial risks” and argued that deepened reform and opening up are the key measures to proactively control such risks in China’s financial sector.
In terms of systemic risks, his rhetorics were unusually harsh. Zhou said:
China’s financial sector is and will be in a period with high risks that are easily triggered. Under pressure from multiple factors at home and abroad, the risks are multiple, broad, hidden, complex, sudden, contagious, and hazardous. The structural unbalance is salient; law-breaking and disorders are rampant; latent risks are accumulating; [and the financial system’s] vulnerability is obviously increasing. [China] should prevent both the “black swan” events and the “gray rhino” risks.
In the financial system, a so-called “black swan” event refers to an occurrence that is random and unexpected, while a “gray rhino” risk is a threat that everyone sees coming but fails to address. Both terms have become popular recently in China’s financial sector; multiple Chinese financial officials have mentioned these two problems on various occasions.
As for Zhou himself, he has repeatedly discussed “systemic financial risks” recently. As The Diplomat reported earlier, during the 19th Party Congress in mid-October, Zhou warned the public of the dangers of a “Minsky moment” — the moment when asset values suddenly collapse — against the backdrop of China’s current fast-paced economic recovery.
In his latest article, Zhou elaborated on the top three financial risks China is faced with: the high-leveraging ratio and liquidity in macro-finance; the credit risk in micro-finance; and cross-market and cross-regional shadow banking together with financial crime.
Zhou noted that China’s total debt-to-GDP ratio had surged to 247 percent in 2016, while it was 165 percent for corporate debt, higher than the internationally accepted risk level.
Specially, Zhou mentioned that some “financial predators”and regulators have colluded to conduct insider trading. It was not the first time that a Chinese official criticized the problem of “financial predators,” either.
As The Diplomat reported, in March China’s Premier Li Keqiang made a harsh speech about clamping down on those “financial predators” and regulators who had conducted illegal acts. For example, Wu Xiaohui, the founder and chairman of Anbang — the Chinese insurance conglomerate that purchased the luxury Waldorf Astoria hotel in New York in 2014 — has been detained in China for potential economic crime since early June. Wu has been widely regarded as one of the most high-profile “financial predators” since then.