(Yicai Global) Aug. 17 -- China’s economy will face great pressure in both supply and demand at home and abroad, and its financial system will inevitably encounter huge difficulties and so financial institutions must do their best to dispose non-performing assets as soon as possible, said Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, wrote in an article that appeared yesterday.

"Financial activities must expand to curb a recession when economic activities contract sharply,” Guo said on financial system risks on the third occasion he has aired his views on the subject on major media since July 3, this time in an article that appeared yesterday in the magazine Qiushi.

“The original aim of regulation was for broad money and social financing to grow slightly faster than nominal gross domestic product, up over 10 percent in the first half from a year earlier,” Guo noted, adding “The overall leverage ratio and the sub-sector leverage ratio are expected to rebound significantly this year, and financial institutions are likely to have many more bad debts." The banking sector has had CNY2.7 trillion (USD388.5 billion) in non-performing loans this year, he noted, and asset quality deterioration inevitably doubled after the occurrence of the Black Swan Covid-19 pandemic event.

Financial institutions must thus dispose non-performing assets as early as possible in the face of the great challenges posed by the coronavirus, adopt more prudent financial and accounting rules, fully expose non-performing assets, and raise loan loss provisions and capital supplement, Guo urged.

China must also prevent shadow banks from staging a comeback. The country must have determined strategies, maintain a high-handed posture on high-risk businesses, make great efforts to achieve a clear and orderly division of responsibilities in the stock, bond, credit and monetary markets, continue to rectify internet financial risks, and crack down on illegal financial activities such as illicit fund-raising.

The nation must also timely deal with different institutional risks, have targeted policies for institutions beset by varying risks, work out a list of its systemically important banks, and make recovery and disposal plans for financial institutions on the list.

Many foreign countries have adopted strong stimulus measures. The US’s unprecedented unlimited quantitative easing policy is devouring the credit of the greenback in the dollar-dominated international monetary system and eroding the foundation of global financial stability, and will have an unimaginably negative impact, Guo advised.

Emerging economies are likely to face imported inflation, write-downs in foreign currency assets, and fluctuations in exchange rates and capital markets and, even more seriously, the world may edge to the brink of a global financial crisis again, he warned.

Editor: Ben Armour