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Spoiler Alert! Preview of 2021 Semiannual Report of China’s Systemic Financial Risk

Time: 2021-05-19 08:23 Print

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Count down 3 days!

2021 Tsinghua PBCSF Global Finance Forum will be held on May 22nd and 23rd. Attracting wide attention, the 2021 Semiannual Report of China’s Systemic Financial Risk will be released in Plenary Session III.

How is the systemic financial risk in China? Here is a preview of the report.

2021 Semiannual Report of China’s Systemic Financial Risk is published by Tsinghua University National Institute of Financial Research (NIFR), led by professor Hao ZHOU, Unigroup chair professor and associate dean at Tsinghua PBCSF, and deputy chair at NIFR. Professor Zhou was a senior economist at US Federal Reserve Board before 2013.

The report examines the dynamic changes of China’s systemic financial risk from the macro and micro perspective, on the basis of which China’s macro-economic trend and policies are further discussed.

The latest calculation shows that: on the macro level, Catastrophic Risk in the Financial Sector (CATFIN) has had reached short term risk warning threshold for multiple times, while the trend value has been falling since the first quarter of 2021; on the micro level, there are obvious observation of systematic risk accumulations in banking sector, which shows a quick rise in the first half of 2021, followed by decrease with some rebounds during the process. Measured by SRISK, the total risk of banking sector is still at a high level (digraph 2).

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Digraph 1 Dynamic Movement of CATFIN

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Digraph 2 Comparison of SRISK Marginal Contributions of Different Sub-industry

The report shows that the over risk accumulation in banking sector is of great concern. The lack of scope and depth in capital market is limiting the risk clearing and diversification. On the policy level, China needs to stabilize or progressively decrease the real economy leverage ratio to prevent systemic financial risks. Furthermore, the speed-up construction of multi-level capital market is needed to resolve systemic financial risks. Only to increase the proportion of direct financing can China constantly resolve and diversity financial risks.

In regard to potential risks, it is of great concern that whether the nonperforming loan of delayed exposure is under control, and also the risks in bankruptcy and liquidation of financing platform, disorderly default of industrial debt, weak qualification real estate enterprise and overcapacity industry. Currently, China needs to speed up the construction of the rating system, strengthen the information disclosure, and compact the responsibility of rating agencies to enable the system’s full function of revealing financial risks. Secondly, China should strengthen the management of non-performing assets, whose regulatory compliance should also be emphasized, and avoid covering up risks with false information. Finally, we should enhance the measures of capital supplementation. At present, the rapid consumption of bank capital is a common problem. From the perspective of marketization, attracting strategic investors and optimizing the shareholder structure are the means of healthy and sustainable development. Therefore, we should encourage high-quality banks to participate in shareholding of small and medium-sized banks, thus achieving the synchronized business development.

For more details, please stay tuned for 2021 Tsinghua PBCSF Global Finance Forum on May 22 and 23!