Chinese Leader Xi Urges Financial Risk Prevention Amid Economic Downturn

Chinese leader Xi Jinping speaks in Beijing on Jan. 2, 2019. (MARK SCHIEFELBEIN/AFP/Getty Images)

BEIJING—China should seek stable development of its economy while not forgetting to fend off risks to its financial system, Chinese leader Xi Jinping said at a recent study session held for senior Communist Party officials.

Preventing and resolving financial risks, especially systemic financial risks, is a fundamental task, Xi told officials on Feb. 22.

“It is necessary to focus on preventing risks on the basis of steady growth, while strengthening the countercyclical adjustment of fiscal policy and monetary policy and ensuring that the economy operates in a reasonable range,” Xi said, according to a report by state-run media Xinhua.

China’s economy is growing at its slowest pace in almost 30 years, spurring policymakers to bolster growth by easing credit conditions and cutting taxes.

Xi’s speech echoes one he made in January, where he told cadres to prevent and control any economic risks that could threaten social stability. The sense of urgency he conveyed hinted at the severe state of China’s economic downturn.

Also in January, Xiang Songzuo, a well-known economist, gave a speech at a Shanghai finance summit, explaining the reasons for China’s economic downturn in the past year. According to Xiang, China’s capital market fell by 30 percent last year and the market value shrank by more than 7 trillion yuan (roughly $1 trillion). Looking at the past decade as a whole, China’s stock market decline has been comparable to the economic depression in the United States in 1929, he said.

Xiang further predicted that China’s debt problem would soon lead to a “Minsky moment”—an economic phenomenon in which a debt bubble collapses due to falling asset and property prices.

State Intervention

Earlier in the week, on Feb. 20, Premier Li Keqiang said that the Chinese regime wouldn’t resort to “flood-like” stimulus such as it has unleashed in past downturns.

But after a spate of weak data, investors are asking if Beijing needs to speed or boost support to reduce the risk of a sharper slowdown.

China has so far refrained from cutting benchmark interest rates to spur the slowing economy, which would ease financing costs, but risk adding to a mountain of debt.

But to free up more funds for lending to small and private businesses, the central bank has cut the reserves that banks need to set aside five times in the past year.

Last month, Chinese banks made the most new loans on record, a total of 3.23 trillion yuan ($481 billion).

Beijing officials so far have downplayed the effects of lending growth, telling Chinese business news media Caixin that “growth in social financing doesn’t indicate that China is opening the credit floodgates, as the new borrowing meets actual economic demands and remains at a stable level.”

But the move indicates that Beijing is willing to adopt aggressive stimulus measures.

By Ben Blanchard, Judy Hua, and Ryan Woo. The Epoch Times contributed to this report.