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’m afraid 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 comes after large influxes into China following its rapid resumption of the pandemic, at a time when authorities in Beijing have sought to liberalize overseas access to the country’s tightly controlled financial system.
In 2020, foreign direct investment in China was $ 163 billion, exceeding flows in all other countries of the world. Investors are piling up RMB1tn ($ 150 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 the volatility of the domestic market. should be avoided.
His comments, which lowers stock prices in Asia, boosted expectations of monetary tightening in China. The CSI 300 index of the country’s largest listed stocks in Shanghai and Shenzhen hit its highest level in February, surpassing its previous high in the summer of 2007 at the very start of the global financial crisis.
They also come weeks after Ma Jun, an adviser to the People’s Bank of China, said the risk of “bubbles” would increase. if the central bank has not adjusted its policy. Policy rates in China were cut last year in response to the coronavirus crisis, but policymakers have struggled with low inflation despite economic growth exceeding its pre-pandemic rate at the end of the year. 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 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 last year to 270% at the end of 2020, its biggest increase since the 2008 global financial crisis, according to HSBC.
Qu Hongbin, chief China economist at HSBC, said policymakers in China “would naturally pay more attention to debt risks” now that the recovery is well underway, but added that the policy is overdone. “.