Debts concern, but no ‘Minsky Moment’
Print Edition
CHINA will fend off risks from excessive optimism that could lead to a “Minsky Moment,” central bank Governor Zhou Xiaochuan said yesterday, adding that corporate debt levels are relatively high and household debt is rising too quickly.
A Minsky Moment is a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures. The theory is named after American economist Hyman Minsky.
Zhou’s warnings of potential risks facing the world’s second-largest economy contrast with the rosier views of most Chinese officials.
“If there are too many pro-cyclical factors in the economy, cyclical fluctuations are magnified and there is excessive optimism during the period, accumulating contradictions that could lead to the so-called Minsky Moment,” Zhou said on the sidelines of the Party’s 19th National Congress.
“We should focus on preventing a dramatic adjustment,” he said, adding that China will control risks from sudden adjustments to asset bubbles and will seriously deal with the disguised debt of local government financing vehicles.
Still, China’s overall debt levels could decline as long as authorities keep a tight control on credit, he said.
While hedge funds sometimes refer to Minsky in warnings about a China credit bubble threatening the global economy, China has so far proven doomsayers wrong.
“I would doubt they really think China is in for a Minsky Moment, but maybe he is trying to impress (other leaders in Beijing) on the need to start reining in credit growth,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.
The IMF said in August that it expected China’s total non-financial sector debt to rise to almost 300 percent of its gross domestic product by 2022, up from 242 percent last year.
Zhou also said the trading range of the yuan exchange rate was not a key issue at the moment, and that the width of the yuan’s current band rarely constrains supply and demand. “Sometimes a widening of the exchange rate’s floating range is a signal that (China’s) opening-up will move forward. But this is not the key focus currently,” he said.
Zhou, 69, the country’s longest-serving central bank chief, has spearheaded financial reforms and boosted the yuan’s global profile.
The foreign exchange market is currently stable, Pan Gongsheng, chief of the forex regulator, said on the sidelines of the congress, adding that supply and demand in the forex market was basically balanced.
On Wednesday, Pan said he expected yuan exchange rates to have a more stable foundation after the congress and the central bank had “basically exited” from its regular yuan intervention.
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