Zhou Xiaochuan, the governor of China’s central bank – the People’s Bank of China (PBOC), has warned that China’s financial system is becoming more vulnerable due to high levels of leverage, or borrowing.
Zhou, in an article published on the People’s Bank of China’s website, has warned about the prospect of potential financial problems in the world’s second-biggest economy.
He argued that deepened reform and opening up are the key measures to proactively control such risks in China’s financial sector.
The central bank governor called for eliminating “zombie” companies to avoid a financial crisis.
Zhou warned that risks of damage to the financial markets in China are “hidden, complex, sudden, contagious and hazardous”.
“In sectors of the real economy, this is reflected as excessive debt, and in the financial system, this is reflected as credit that has been expanding too quickly,” express.co.uk quoted Zhou as saying.
Zhou elaborated on the top three financial risks China is faced with: the high-leveraging ratio and liquidity in macro-finance; the credit risk in micro-finance; and cross-market and cross-regional shadow banking together with financial crime.