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China Regulator Warns of Financial Crisis; BRI Investment Favored

Jan. 17, 2018 (EIRNS)—China’s chief banking regulator warned of the threat of a banking panic event, using the term "black swan event" which could threaten China’s financial stability, in an interview Jan. 16 with People’s Daily. Guo Shuqing told the the paper the financial system risks are "complex and serious."

Guo has been cracking down on shadow bank activity, as well as loan fraud. He warned of the danger of rising bad debt in China’s financial system, and said,

"We need to focus on reducing the debt ratio of companies, restrict household leverage, strictly control cross-financial sector products [i.e., sold by shadow banks to banks and investors], continue to dismantle shadow banking."

China’s housing markets have been dramatically reined in. The Wall Street Journal reported Jan. 17 that over the entire country over the past year, the annual housing price appreciation has dropped from 10% to 5%; but in Beijing and Shanghai and neighbor cities, it has dropped from 40% to nothing. In some districts prices are falling. So there are bad debt problems among housing developers and mortgage lenders, although the commercial banks are partly shielded from this. The Journal notes,

"China doesn’t have the sort of risky financial products that crashed the American housing market and infected the global economy a decade ago."

China’s overseas investment was shifted in 2017 by similar active regulation. Actual investments on the Belt and Road Initiative project have been relatively constant: $18.5 billion in 2015, $14.4 billion in 2016, and $14.7 billion in 2017. But China’s overall overseas investment dropped 30% in 2017, to $120 billion, due to strong measures to discourage highly speculative investments. So the BRI share of overseas investment approached 15%.