China’s growth objectives clash with financial stability goal: IMF

December 7, 2017

A Chinese investor reads a newspaper as he monitors stock prices at a brokerage house in Beijing, Tuesday, Oct. 17, 2017. Asian stocks rose Tuesday after Wall Street’s major indexes hit new highs as China prepared to open a key political meeting. (AP Photo/Mark Schiefelbein)

BEIJING: China should prioritize financial stability above development goals, as pursuit of regional growth targets and helping firms avoid heavy job losses had led to a surge in debt, particularly at local government level, the International Monetary Fund said, reported Reuters.

Noting a lack of coordination and inadequate systemic risk analysis in a report released on Wednesday, the IMF also recommended the formation of a financial stability sub-committee comprising the central bank and three financial regulatory agencies, and an increase in staff for the banking watchdog.

Since the IMF’s last assessment of the Chinese financial sector’s resilience to shocks and contagion in 2011, two concerns remain – credit growth remains high and the expansion of wealth management products (WMPs), said Ratna Sahay, deputy director of the IMF’s Monetary and Capital Markets Department.

“Risks are large,” Sahay told reporters during an online briefing. “Having said that, the authorities are really aware of risks and they are working proactively to contain these risks.”

The IMF report said that while China has been taking steps to address its debt risks, reining in excessive credit growth will require a de-emphasis on high GDP projections in national plans that have spurred local governments to set high growth targets.

But the near-term prioritization of social stability seems to depend on credit growth to sustain financing to firms even when they are non-viable, it said.

“The apparent primary goals of preventing large falls in local jobs and reaching regional growth targets have conflicted with other policy objectives such as financial stability,” the report said.