China’s $9 trillion moral hazard

Business & Technology

Top business and technology news for February 22, 2017. Part of the daily SupChina news roundup "Chinese lab to study Ebola and other dangerous pathogens."

  • China to focus on tackling deep financial risks in 2017, senior policymaker says / SCMP
    Speaking in Hong Kong on Tuesday, a senior Chinese official from the Central Leading Group for Finance and Economic Affairs said that despite its official GDP growth figure of 6.7 percent last year, China’s economy “lacked an inner driver for development,” and that private investment “remained tepid…while financial risks led by growing property speculation were increasing.”
    Meanwhile, Bloomberg reports that “China’s $9 trillion moral hazard problem” has become “too big to ignore.” In other words, the government needs to do something about investment schemes that promise risk-free returns because there is an explicit or implicit guarantee that the state will bail them out if they fail. The article says that the country’s main financial regulators are tackling the problem with a set of new rules, but that “history suggests Beijing may have a hard time following through on reforms.”
    In related news: Bloomberg also has a story on the risks of state debt posed by “public private projects” in which private capital funds public works in partnership with government organizations. Reuters looks at the problems caused by large-scale borrowing by the Liaoning provincial government, under whose watch the northeastern province’s economy has been shrinking.