Interview: China makes progress in safeguarding financial stability, IMF official says

WASHINGTON, Dec. 7 (Xinhua) -- China has been making progress in safeguarding financial stability, and could continue safe and rapid growth with intensified efforts to address potential risks, a senior official at the International Monetary Fund (IMF) has said.

Comprehensive reforms have been introduced by Chinese authorities in the financial sector, Ratna Sahay, deputy director of IMF's monetary and capital market department, told Xinhua in a recent interview.

"If (Chinese) authorities are able to address the three concerns that we have identified, they can go through the transformation process in a safe and sound measure," she said.

The IMF on Wednesday released an assessment report on China's financial system, in which the Washington-based lender warned that China's rapid credit growth, complex financial products and government's implicit guarantee posed threats to its financial stability.

Chinese authorities have taken measures to address these concerns, which is good news, said Sahay who is also the head of the assessment program.

China has deemphasized high GDP growth projection and stressed the importance of quality of growth, which could reduce incentives for local governments to support high growth at the expense of financial stability and could help bring down credit growth, said Sahay.

In order to prevent regulatory arbitrage, Sahay suggested that China should strengthen resources, independence and coordination among regulators and supervisors.

She cited China's recent efforts to unify regulations of asset management products and strengthen regulatory of internet financing products, saying that China could further enhance inter-agency coordination.

In regard to China's recent establishment of a Financial Stability and Development Committee under the State Council, Sahay considered it as a "good step" to improve oversight of systemic risk, and suggested that China should set up a sub-committee whose sole job is to monitor financial stability.

According to the IMF's assessment, China's banking system meets the Basel requirements and has sufficient capital to withhold extreme crisis. However, it still recommended China to increase capital and liquidity in the banking system to protect against potential risks.

"This is more as a precautionary measure to increase buffers in the system, because banks are at the core of the financial system," said Sahay.

Sahay disagreed with the comparison of China's current debt conditions with Japan's banking crisis in 1990s, although China's corporate debt level is high.

"They are very different in characteristics, and they are also different stages of growth. China is still growing very rapidly," she said.

China's corporate debt level has been coming down recently; corporates become more profitable; and Chinese authorities have take steps to require banks to adopt more stringent lending standards. These factors could help ease worries over China's corporate debt issue, according to Sahay.

Supervising one of the world's largest and most complicated systems is a challenging task, said Sahay and her colleague James P. Walsh in a recent IMF blog post.

"China's leaders have made financial stability one of their top priorities. Given the size and importance of the Chinese market, with the world's largest banks and second-largest stock market, that is welcome news for China and the world," they said. Enditem