China PBOC Chief Cites Credit Risk While Reassuring on Growth

People’s Bank of China Governor Zhou Xiaochuan warned banks about increased credit risk amid rising real estate prices in the biggest cities, while adding the country can achieve its economic growth targets without too much monetary stimulus.

Property prices have begun to diverge severely from values in less-populated areas, Zhou said at a briefing in Beijing. He said the country faces “relatively big’ downward pressure from efforts to eliminate excess housing inventory, which may suppress prices nationwide.

With the briefing, his fourth public appearance in less than a month, Zhou again sought to project an aura of calm and tamp down concern over Volatility in the stock and currency markets while underscoring the risks posed by rising debt. Warning signs including low inflation and flagging industrial output have led to speculation that the government will need to rely on looser monetary policy to achieve its minimum growth target of 6.5 percent over the next five years.

“Excessive monetary policy stimulus isn’t necessary to achieve the target,” Zhou said, reiterating past comments that monetary policy is prudent with a slight easing bias. “If there isn’t any big economic or financial turmoil, we’ll keep prudent monetary policy.”

Addressing the property risks requires better guidance from officials in individual cities, and banks should closely monitor customer credit-worthiness in mortgage lending, Zhou told the briefing, which took place on the sidelines of the national legislature’s annual session. He added that unauthorized lending by real estate agents and property developers increases chances of bad debt.

Financial Risks

Rebounding property prices in some of China’s biggest cities have spurred increased demand for mortgages, while surging bond issuance is also boosting financing. At the start of the National People’s Congress session on March 5, the government announced an increased 2016 M2 money supply target. That signaled that supporting economic growth has taken over as the top priority over reducing financial risks.

The central bank cut the main interest rate to a record low in six successive reductions through October, and recently made another cut to the require-reserve ratio for major banks.

Before the reserve-ratio cut, Zhou said Feb. 26 that China still has monetary policy room to aid growth. Premier Li Keqiang’s annual work report, also released to the National People’s Congress on on March 5, said China "will pursue prudent monetary policy that is flexible when appropriate."

Deputies Join

Zhou, 68, is the longest-serving central bank chief among G-20 economies. His public re-emergence has eased confusion over a shock yuan devaluation in August that triggered global market turmoil. He spoke Saturday alongside PBOC deputy governors Yi Gang, Fan Yifei and Pan Gongsheng, who also Leads the State Administration of Foreign Exchange.

China set a range for its economic growth target for the first time in more than two decades as it grapples with rising debt and capital outflows that have spurred unease about the nation’s economic prospects. The 6.5 percent to 7 percent range for 2016 allows for a slower expansion than last year’s target of about 7 percent.

Yi said Saturday that capital outflows, which soared to $1 trillion last year, are poised to be in a normal range, and most are related to foreign exchange purchase by companies, banks and residents.

(Updates to add quote in second paragraph.)