China's Xi to tackle financial risks as corporate debt rises

BEIJING -- Chinese President Xi Jinping is expected to use an annual economic policy meeting to stress the need to prevent a financial crisis, even though tighter regulations could pour cold water on an economy shored up by robust exports and investment.

The Central Economic Work Conference kicks off Monday, according to local media. Xi will lay out key economic policies for 2018 at the closely watched three-day event.

"We could see policies that look ahead to all five years of Xi's second term," an economist said.

Financial risks will likely be a key focus of the conference. Mitigating them was among the first topics discussed when the party's Politburo held a preparatory meeting Dec. 8. Controlling surging corporate debt ratios and steering bank lending more toward the real economy, including manufacturing, are seen as crucial. Beijing also wants to create a framework to prevent real estate bubbles.

A December report by the International Monetary Fund predicted that large Chinese banks will remain on solid ground even with a sudden slowdown in economic growth. But small and midsize banks are a different story. The IMF says those banks could face a combined capital shortfall equivalent to 2.5% of gross domestic product, in large part from losses from wealth management products. The international organization wants to see China cut down on the excessive debt held by companies and financial institutions.

China has taken some steps, such as releasing a draft of sweeping rules on wealth management products last month. But certain banks are already pushing back, warning that moving too quickly to regulate the instruments could restrict banks' cash and actually trigger a crisis. All eyes are on how the leadership will tackle the issue next week.

The conference will also set 2018 targets for GDP, consumer prices and employment. The figures will come out at the National People's Congress in March.

Many expect the economic growth target to remain unchanged at around 6.5%. Some even project a downgrade, given that Xi set no GDP goals for 2020 and beyond at the Communist Party congress in October.

The Chinese economy has lost some steam in the second half. But any slowdown in growth remains slight, thanks to strong exports and investment in fixed assets.

Exports jumped 12% in dollar terms on the year in November, the fastest growth in eight months. Such key products as mobile phones, computers and textiles all saw double-digit increases. This also provided tailwinds to private-sector investment, said to correlate closely with exports.

Investment in infrastructure jumped 20.1% on the year for the January-November period, 0.5 percentage point more than for the first 10 months of the year.

The tally for November alone surged about 24%. In addition to roads, airports and railroads, Xi is pushing for projects to alleviate poverty, such as low-income housing and sewage systems.

Much of the investment has a heavy impact on daily life and will lead to greater consumption, National Bureau of Statistics spokesperson Mao Shengyong told reporters Thursday.

Source: China's Xi to tackle financial risks as corporate debt rises