Guo Shuqing, the Communist Party boss at the People’s Bank of China, told reporters in Beijing on Tuesday that confidence in Chinese markets could be hit by volatility around the world.
“We are really afraid the bubble for foreign financial assets will burst someday,” said Guo, who is also chairman of China’s Banking and Insurance Regulatory Commission
Guo echoed such fears, adding that the rallies in US and European markets don’t reflect the underlying economic challenges facing both regions as they try to recover from the brutal pandemic recession.
“Such [a] bubble bust could trigger substantial foreign capital inflow to China,” wrote analysts at Mizuho Bank in a research note, adding that the regulator said he would study “effective measures” to encourage the free flow of capital while avoiding shocks to financial markets. A huge rush of funds into China could destabilize the world’s second biggest economy by rapidly inflating its currency, assets and prices.
The Chinese banking leader also said he’s worried about whether China’s property sector is at risk of volatility too — an issue that analysts say implies that the country may be ready to tighten its purse strings. President Xi Jinping told an economic conference late last year that the country needs to stabilize the property market in 2021, and Beijing has already taken some measures to do that. In December, regulators issued rules intended to limit lending to the property sector.
Local governments in China, meanwhile, have stepped up measures since the start of this year to cool the market down, including by restricting purchases and reining in developers.
“This indicates how sensitive markets are to policy accommodation being taken away,” wrote Stephen Innes, Chief Global Markets Strategist at Axi, in a Tuesday note. “It also highlights that central banks will run at different speeds in pulling away from last year’s crisis.”
Guo’s comments also reflect concerns from Beijing about the risk that rising debt poses to the economy. Property loans accounted for nearly 30% of total loans issued in yuan by the end of 2020, according to central bank data.
And some in China have already been suggesting that it’s time for the country to taper fiscal and monetary support — including former finance minister Lou Jinwei, who in December said that a “gradual exit” from loose policy will help stabilize and eventually reduce China’s debt ratio.