Risk warning ｜ Guo Shuqing： Promoting capital preservation and high returns is a financial fraud, and the real estate bubble is a ＂grey rhinoceros＂

middleGuo Shuqing, secretary of the Party Committee of the People’s Bank of China and chairman of China Banking and Insurance Regulatory Commission of China, recently wrote in Qiushi magazine that the financial sector has faced new major challenges after the COVID-19 epidemic, and the financial system should strive to ensure that the economic and social development goals are achieved as scheduled. The important tasks at this stage include fully promoting the national economy to return to a normal cycle, accelerating the structural reform of the financial supply side, and further strengthening the party’s leadership over financial work.

A quick glance at the main points

1. The real estate bubble is the biggest "grey rhinoceros" threatening financial security, and the current real estate financialization bubble momentum has been curbed.

2. At present, some countries implement unlimited quantitative easing policy, and the long-term effect is very uncertain.

3. Credit risk is the most basic risk in the financial industry, and toxic assets are the focus that must be removed with determination. Covering up the delay will only delay the treatment and eventually bring serious consequences.

4. The risk of shadow banking is "low ignition point" and "high intensity". If there is any trouble, it may form a "prairie fire" and cause endless harm.

5. There are no high-return and low-risk financial products in the world, and there is no so-called "steady profit without loss" financial management project. It is financial fraud to promote "guaranteed capital and high income".

The trend of real estate financialization and bubble has been curbed.

Guo Shuqing said that the real estate bubble is the biggest "grey rhinoceros" threatening financial security. In recent years, various regions and departments have optimized the allocation of financial resources in accordance with the spirit of "housing and not speculating" and "one city, one policy" to prevent funds from flowing into the real estate market in violation of regulations. Compared with 2016, the growth rate of real estate loans decreased by 12 percentage points, and the proportion of new real estate loans in all new loans decreased by 10 percentage points. It not only meets the normal needs of the steady development of the real estate industry, but also avoids greater risks due to excessive concentration of funds.

There is uncertainty about the long-term effect of unlimited quantitative easing policy.

Guo Shuqing said that at present, many countries in the world, especially the most developed countries, have adopted strong stimulus measures. Some countries have implemented unlimited quantitative easing policies, and both fiscal and monetary policies have released a large amount of liquidity to the market, providing direct financing or guarantees to individuals and enterprises. In the short term, this approach is conducive to stabilizing the economy and finance, but there is great uncertainty about the long-term effect.

There is no free lunch in the world, and there is no feast that must come to an end. In the international monetary system dominated by the US dollar, the unprecedented unlimited quantitative easing policy in the United States actually consumes the credit of the US dollar and erodes the foundation of global financial stability, which will have unimaginable negative effects. Emerging economies may face multiple pressures such as imported inflation, shrinking foreign currency assets, exchange rate and capital market shocks. More seriously, the world may once again come to the brink of the global financial crisis.

Increase the disposal of non-performing assets

Guo Shuqing said that financial institutions should adopt a more prudent financial accounting system, classify real assets and fully expose non-performing assets. In daily supervision, it is not simple to take the rise of non-performing rate as a criterion. It is necessary to make use of the financial space vacated by the reduction of provision supervision requirements and increase the disposal of non-performing assets. Formulate realistic income and profit plans, and increase provision and capital replenishment. Clear the policy blocking point of non-performing assets disposal and create more favorable conditions for improving the stability of the financial system.

Guo Shuqing revealed in an interview with the media a few days ago, "It is estimated that the banking industry will dispose of 3.4 trillion yuan of non-performing loans this year, which is stronger than last year’s 2.3 trillion yuan. The disposal will be even stronger next year, because many loans have been postponed and some problems will only be exposed next year."

Maintain a high-pressure situation for high-risk businesses

Guo Shuqing said that it is necessary to adopt a series of macro-hedging policies to deal with the epidemic, and further efforts may be made in case of new abnormal situations during implementation. However, we can’t help but see that enterprises, residents and governments may increase their debts in the context of loose funds. After the expectation of downward consistency of interest rates is strengthened, it may encourage leveraged trading and speculation and give birth to a new round of asset bubbles. Real estate prices in some places began to rebound, and financial resources may once again be concentrated in high-risk areas. Borrowers with poor credit may maliciously evade debts by delaying repayment and other preferential policies, and high-risk shadow banks with complex structures are also prone to make a comeback.

He emphasized that at present, after unremitting governance, the risks of shadow banking have been controlled to a certain extent, but the soil for survival has not been completely eradicated. A slight relaxation of supervision is likely to fully regain its momentum, leading to all previous efforts being abandoned. It is necessary to maintain strategic strength and maintain a high-pressure situation for high-risk businesses. Highlight the principle of simplicity and transparency, standardize cross-financial products, so that the boundaries between public offerings and private offerings are clear, the risks of on-balance-sheet business and off-balance-sheet business are isolated, the entrusted business and self-operated business are operated separately, and the savings products and investment products are distinct. Strive to realize the clear responsibilities and orderly division of labor in the stock market, bond market, credit market and money market. At the same time, we will continue to rectify Internet financial risks and severely crack down on illegal financial activities such as illegal fund-raising.

Timely handling different types of institutional risks.

Guo Shuqing pointed out that institutions with different risks should make accurate and effective policies. High-risk financial groups shall be disposed of according to the established plan and division of labor. For rural financial institutions, adhere to the overall stability of county legal person status, and encourage the use of various ways to supplement capital and introduce strategic investors. For local legal institutions such as city commercial banks and trusts, support provincial governments to formulate and implement disposal plans, and financial management departments strengthen professional guidance. Pay close attention to the study and put forward the list of domestic systemically important banks, and organize the formulation of recovery and disposal plans for financial institutions in the list.

It is necessary to establish an efficient risk disposal mechanism for problem institutions. Financial institutions perform the main responsibilities, and shareholders, especially major shareholders, have to bear important responsibilities. When local party committees and governments perform territorial responsibilities, they should closely combine the responsibility of implementing local party leadership, the responsibility of managing local state-owned financial capital, the responsibility of handling risks in their jurisdictions and the responsibility of maintaining social stability. The financial management department shall perform the main responsibility of supervision. Improve the deposit insurance system and institutional system, and give full play to the role of early intervention, early warning and early disposal.

Actively participate in the formulation of international financial governance and regulatory rules.

Guo Shuqing pointed out that we should follow the principle of autonomy, order, equality and security, and strive to achieve a higher level of financial opening on the premise of ensuring financial sovereignty. Accelerate the construction of an open, transparent, stable and predictable regulatory policy environment, and encourage Chinese and foreign financial institutions to compete on an equal footing, deepen cooperation, learn from each other and promote innovation. Improve the macro-financial management and risk prevention and control capabilities under open conditions, and timely discover and effectively prevent external shocks from spreading to China. Actively participate in the formulation of international financial governance and regulatory rules, strengthen international coordination of macroeconomic policies, and improve the right to speak internationally.

Effectively strengthen the education and protection of financial consumers.

Guo Shuqing said that it is necessary to strengthen the popularization of financial knowledge, so that urban and rural residents can understand that investment is risky. Both institutional and individual investors should establish awareness of value investment, rational investment and risk prevention. Carry forward the spirit of contract, strengthen the awareness of the rule of law, adhere to the law, and increase the illegal cost. Simplify product structure, strictly stratify customers, and truthfully report risks. Strengthen information disclosure and improve market transparency. Accelerate the construction of social credit system, further improve the joint punishment mechanism for dishonesty, and promptly correct all kinds of illegal acts that mislead financial consumers.

Originated from china securities journal.