China to tighten oversight of company debt, bank assets

BEIJING: China’s central bank said on Friday it plans to tighten up its oversight in a range of areas including corporate debt and bank assets, as policymakers fret over fast-rising leverage and the risk of asset bubbles in the rapidly growing economy.
The People’s Bank of China (PBoC) also said it will keep the yuan currency basically stable while maintaining a prudent and neutral monetary policy.
“We will increase monitoring of corporate debt risk, bank asset quality and liquidity, abnormal stock market fluctuations, use of insurance funds, property bubble risks…and cross-border capital flows,” the central bank said in its fourth-quarter monetary policy implementation report.
China has relied on rapidly increasing credit to fuel economic growth in recent years, but policymakers have begun to point to the threat of asset bubbles forming.
Home prices rose rapidly in many Chinese cities last year, leading to new restrictions on purchases and lending in dozens of cities since October.
The central bank said on Friday that China should restrict lending for property market speculation and build a long-term mechanism for the healthy development of the housing market.
Top leaders in December vowed to focus on controlling financial risks this year, and the central bank has moved to a tightening bias in recent months, including raising the rate on the unofficial policy rate on Feb. 3.
The PBoC on Friday also said it will increase two-way flexibility of the yuan while keeping the currency basically stable.
China’s yuan fell 6.5 percent last year against the dollar and is expected to weaken further this year, as policymakers respond with tighter restrictions on capital outflows.
FX sales slow
China’s central bank sold the least amount of foreign exchange in five months in January, reinforcing views that capital outflows have eased.
Net foreign exchange sales by the (PBoC) amounted to 208.8 billion yuan ($30.42 billion) last month, according to Reuters calculations based on central bank data released on Friday.
China’s foreign exchange regulator said on Friday that pressure from capital outflows has eased in 2017 and that cross-border flows were becoming more balanced. Government efforts to prop up the yuan currency pushed China’s foreign exchange reserves below the $3 trillion level in January for the first time in nearly six years. But the drop moderated from recent months, suggesting tighter controls are slowing capital flight.
A recent stumble in the rising US dollar has also helped lift pressure on the yuan and other emerging market currencies. The yuan has gained 1.2 percent against the dollar so far this year, after sliding 6.6 percent in 2016. Currency strategists surveyed by Reuters, however, expect the yuan to come under renewed pressure in coming months on expectations that the US central bank will raise interest rates two to three times this year.