Huang Yiping: Beware Bad Loans in 2nd Half of 202
Sep 01-2021
China has undertaken financial reforms successfully, but new issues are cropping up, such as declining efficiency and rising risks, says Prof. Huang Yiping, Associate Dean of the NSD, in the 376th edition of Chang An Forum. He adds that financial supervision will inevitably move from being stylistic to being substantial in its next phase.
Prof. Huang is a member of China Economists 50 Forum, which co-organized the event with the School of Economics and Management at Tsinghua University. Known for his expertise in macro-economics and international finance, Prof. Huang used to be a member of the Central Bank’s Monetary Policy Committee.
Speaking under the topic The Nature of Financial Supervision, Prof. Huang commends China as the only major emerging market to have never succumbed to any serious financial crisis over the past 40 years. That’s largely due to two solutions: continuous rapid growth and the government acting as the ultimate backstop for financial problems. But neither can remain as effective these days.
The last five to six years have seen the budding of financial risks in one form or another, from high leverage ratio and shadow banking to the high debt ratio of local governments and peer-to-peer lending. To watch out for 2021: the bad loans of small and medium-size banks and the debts of local governments.
To cope with the pandemic, commercial banks handed out 15.3 trillion yuan in loans to small, medium, and micro enterprises in 2020, much at the guidance of the government. While it makes sense to go all out in such an enormous crisis, financial institutions have taken up most of the responsibilities for assisting companies. The government has yet to explicitly spell out who would shoulder the main responsibilities should such financial assets go bad.
That points to a long-standing problem: the government tends to force too many policy functions on regulatory departments and financial institutions. Despite some positive outcomes, certain maneuvers might lead to the accumulation of issues that would harm the market operation of financial institutions.
Concerning regulatory reforms, the focus should be put on four aspects, says Prof. Huang. To begin with, regulatory goals must be clearly set to ensure fair competition, protect financial consumers’ interests, and safeguard financial stability. Moreover, the regulatory departments should be endowed with a certain degree of independence, professionalism, and authority. In addition, financial supervision must be held accountable. And lastly, resources should be significantly increased to boost regulatory capabilities.
