Main Chinese banking regulator warns of ‘bubble risks’ in foreign markets

China’s main banking regulator has warned of the risk of bubbles in international markets and in the country’s real estate sector, in the latest sign of growing concerns over rising global asset prices.

Financial markets in Europe and the United States are out of sync with their economies and fueled by monetary and fiscal policy, Guo Shuqing, chairman of the country’s banking and insurance regulatory committee, said on Tuesday in comments that said. state of potential spillover effects on the Chinese financial system. .

“I am afraid that the bubble problem in foreign financial markets will one day burst,” he said. “The Chinese market is now closely linked to foreign markets and foreign capital continues to flow.”

The stern warning followed large influxes into China following its rapid recovery from the pandemic, and as authorities in Beijing sought to liberalize access abroad to the tightly controlled financial system of the country.

In 2020, foreign direct investment in China was $ 163 billion, exceeding flows in all other countries of the world. Investors are piling up Rmb1tn ($ 155 billion) in the country’s capital markets through investment programs in Hong Kong.

Guo, who is also the party secretary of the central bank, said the “scale and speed” of inflows was manageable and added that on the one hand, cross-border flows should be encouraged, but on the other hand, causing volatility in the country. the internal market must be avoided.

His comments, which lowers stock prices Tuesday in Asia, increased expectations of monetary tightening in China. The CSI 300 index of the largest stocks listed in Shanghai and Shenzhen reached its highest level in February, surpassing its previous peak in the summer of 2007 at the very onset 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 the risk of “bubbles” would increase if the central bank has not adjusted its policy. Significant rates in China were cut last year in response to the coronavirus crisis, but policymakers grapple with low inflation despite economic growth exceeding its pre-pandemic rate at the end of last year.

Beijing has taken over rapid rise in prices in its real estate sector, introducing measures to limit the indebtedness of its largest real estate developers. China Fortune Land Development, an industrial park developer, by default on a $ 530 million bond over the weekend.

“The major problem in the real estate industry is still relatively large bubbles,” Guo said on Tuesday. He added that many people were buying homes as speculative assets rather than living in them, but said home loan growth had been slower than various other types of loans last year.

China’s debt-to-GDP ratio rose 24 percentage points in 2020 to 270%, the fastest increase since the 2008 global financial crisis, according to HSBC.

Qu Hongbin, chief China economist at HSBC, said policymakers in China “will naturally pay more attention to debt risks” now that the recovery is on track, but added that policy is exaggerated ”.

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