Leadership pledges to control financial risks
The Government Work Report outlined plans to coordinate regulation and crack down on illegal borrowing, as Li Xiang reports.
The nation's top leadership has said the resolution and prevention of financial risks and the promotion of economic deleveraging will be key tasks this year, as many experts had predicted.
The announcement came during the two sessions, the gatherings of the National People's Congress and the National Committee of the Chinese People's Political Consultative Conference, one of the country's biggest annual events.
With a slightly different emphasis from last year's task of building "strong firewalls" against specific risks in the financial sector, the country will tackle the problem by addressing the "root causes" with proper economic policies and necessary reforms instead of simply treating "the symptoms" in the financial markets.
The approach was underlined by the Government Work Report, delivered by Premier Li Keqiang on March 5, during the first session of the NPC, the nation's top legislative body.
"What China needs to do is tackle both the symptoms and root causes and take effective measures to defuse potential risks," Li said.
According to Yang Weimin, deputy head of the Office of the Central Leading Group on Financial and Economic Affairs, one way to address the root causes of financial risks would be to effectively control and manage the overall money supply and credit growth, which should be the most important job for those tasked with preventing financial risks.
For the first time in nine years, the work report did not set a specific target for M2, the broad measure of money supply. Instead, it stated that the administration will maintain a reasonable rate of M2 growth.
Zhou Xiaochuan, governor of the People's Bank of China, the central bank, said M2 should not be the only indicator for understanding liquidity conditions, and many other factors, including prices and employment figures, should also be taken into consideration.
The toning down of the M2 target reflects the government's prudent stance on monetary policy and its cautious use of credit easing to stimulate growth. That's because credit easing could lead to asset bubble risks in the financial and property markets.
"We should not flood the market with excessive money printing," said Yang, a member of the CPPCC National Committee, the top political advisory body, when he spoke to reporters on the sidelines of the two sessions.
Curbing financial risks will also require tighter regulation and supervision of excessive borrowing by local governments, and a gradual cleanup of the bad loans associated with loss-making "zombie" State-owned enterprises, which have contributed to China's surging debt ratio in recent years.
Premier Li also vowed to crack down on illegal borrowing and guarantees by local governments. He stressed that the central government will not bail out local governments who default on loan repayments.
"All forms of borrowing and debt underwriting that violate the law and regulations are strictly prohibited. Provincial-level governments should assume overall responsibility for debts incurred by local governments within their jurisdiction," he said.
