BEIJING: China may be forced to soften efforts to curb risks in its financial sector in order to protect the economy, said an analyst who made her name warning about the dangers of the nation’s credit binge.
Despite the crackdown on shadow banking and other areas of financial risk, which got underway last year, China’s economic growth is still being underpinned by rising debt, said Charlene Chu, a senior partner at Autonomous Research in Hong Kong. The government’s harsh rhetoric masks a softly-softly approach to tackling financial risk amid fears that stronger action would endanger the economy or the balance sheets of Chinese banks, she added in a recent interview. In the past, we had limited acknowledgment of problems and little action,” said Chu, who has been consistently bearish on the threats posed by a mountain of credit she estimates at 226 trillion yuan ($36 trillion) at the end of 2017.
“Now we have clear recognition of problems, but what I call a ‘Chinese medicine’ prescription for addressing them which emphasizes stability, taking it slowly and eliminating the highest risk behavior.” A more aggressive approach would better address fundamental underlying problems, Chu said, but would be more disruptive in the near term. A softer approach may render China vulnerable to systemic risk in the years ahead. Chu’s views contrast with those of several other analysts and investors who say regulators have made solid progress in curbing excessive leverage. She said one litmus test of China’s resolve would be how far it pushes the campaign to impose strict regulations on asset management products (AMP), a key part of the shadow-banking crackdown. The government has retained a mid-2019 deadline for removing bank guarantees on the products, people familiar with the matter said last week.
