China plays down stability concerns
China's lenders have risks under control, despite concerns that massive local debts and ripple effects from failed informal lending schemes threaten the country's financial stability, the country's top banking regulator has said.
"We are generally concerned about local government financing loans, real estate loans, shadow banking and other areas of potential risk," Liu Mingkang, chairman of the China Banking Regulatory Commission, said in remarks released on the CBRC's website.
But he added that the government and banking regulators had the foresight to take effective action, saying that "overall risks are controllable".
Mr Liu pledged to strictly control risks from lending to local governments and from non-bank lending - a crucial but now strained source of financing for private industry.
In remarks to a conference on Wednesday in Beijing, Mr Liu accused analysts and rating agencies for "bad-mouthing" China's banks and economy, saying they were underestimating China's capacity for reform and management.
China's mostly state-run banks have curbed lending as regulators have tightened monetary policy while requiring them to keep record levels of reserves to help cool inflation.
But an unknown amount of bank loans have gone into private lending, where pyramids of high-interest loans are collapsing as mostly smaller and medium-size private companies defaulted on debts.
In some cases, the companies are going unpaid by customers embroiled in debt problems of their own, and sometimes they have used the money borrowed to invest, not in manufacturing but in speculative investments of their own.
The government has intervened, ordering banks to relax repayment terms and loosen credit for small and medium-size enterprises,
UBS economist Tao Wang puts informal lending at between two trillion and four trillion yuan (£199 billion-£399 billion), or up to 10% of China's GDP.