March 27, 2018 / 3:27 PM / 6 months ago

UPDATE 2-China Vice Premier Liu tells regulators financial risk crackdown is their priority

(Adds context, background)

BEIJING, March 28 (Reuters) - China's Vice Premier Liu He, known for his tough stance on credit-driven stimulus, told a new team of Chinese regulators that the prevention of risks in the country's financial sector is their top priority.

Liu said China also needs to deepen financial reforms and further open up the sector, with market forces providing the cue, according to the official Xinhua news agency on Tuesday.

"To win the battle against financial risks is a priority of the country's current financial work," said Liu, who is also a trusted confidant of President Xi Jinping.

China is among global economies viewed as most vulnerable to a banking crisis, according to the Bank for International Settlements. Beijing has maintained that debt risks are under control, and its commitment to deleveraging will not waver.

But those promises have been met with scepticism, with critics saying China might fall back on the old play-book of credit-fuelled investment when growth slows.

Still, Liu is known to be a critic of credit-derived stimulus, widely seen as being behind the voice of an unnamed "authoritative person" who wrote in the People's Daily, the party's mouthpiece, in May 2016 warning about risks from the country's debt-driven growth model.

"Liu is a critic of the debt-fuelled program that China adopted following the (global) financial crisis, or at least feels that it has continued for too long and that government stimulus cannot be the main driver of growth," said Tony Saich, an expert in Chinese politics at Harvard's Kennedy School of Government.

Liu, on what Xinhua described as an inspection trip, told the central bank and financial regulators that effort should be spent on supporting the real economy while keeping monetary policy prudent and neutral and ensuring reasonable and stable liquidity in the financial system.

His visit followed the recent appointment of a new People's Bank of China (PBOC) governor and the head of a merged banking and insurance watchdog.

The move to tighten oversight of China's $42 trillion banking and insurance sectors comes as Beijing reins in riskier lending practices and cut high corporate debt.

China has also cracked down on Chinese conglomerates for their aggressive acquisitions of overseas assets.

It has additionally launched a campaign to root out officials engaged in corrupt practices in the financial sector.

Xiang Junbo, former chairman of the insurance watchdog, last April became the highest-ranking finance industry official to be investigated for corruption.

"China will also provide a strong political foundation for its financial work by upholding its anti-corruption campaign," Liu said.

Liu, since his elevation into China's 25-member Politburo, the second-highest tier in Beijing's political power structure after the seven-member Politburo Standing Committee, has emerged as an assertive voice in the government on not just the economy and finance, but also trade.

Liu is involved in China's trade dialogue with the United States, and last week spoke with U.S. Secretary Steven Mnuchin as trade tensions between the world's two biggest economies flared anew. (Reporting by Yawen Chen, Min Zhang, Se Young Lee and Ryan Woo; Additional reporting by John Ruwitch in Shanghai Editing by Alison Williams and Sam Holmes)

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