(Bloomberg) – China’s top bank watchdog warned that US dollar dominance combined with the massive stimulus released by the Federal Reserve could send the world to the brink of another financial crisis.
In a rare act of public criticism, China Banking Regulatory Commission Chairman Guo Shuqing also singled out developed countries seeking to refute guilt from their own failures to contain the virus outbreak and by the US to blacklist Chinese companies and entities to contain.
“In an international monetary system dominated by the US dollar, the US’s unusual, unrestricted quantitative easing policy consumes the credit value of the dollar and increases the foundation of global financial stability,” Guo wrote in an article published in ” the Qiushi of the Communist Party magazine on Sunday. “The world may once again be on the brink of a global financial crisis.”
Relations between the two superpowers of the world have deteriorated rapidly in recent weeks, affecting everything from the coronavirus to trade and defense issues, as well as monetary policy. The two have imposed competing sanctions on high-level officials and politicians in a standoff over Beijing’s collapse of Hong Kong, preventing Chinese lenders from reviewing their accounts to jeopardize their access to major dollar funding.
As for China’s financial system, Guo warned that “after the Black Swan of the pandemic, the quality of assets will inevitably decline”, as current loan ratings do not reflect their true quality and the profits of banks are on paper. inflated.
Combined earnings at more than 1,000 commercial banks in China declined at least a decade into the second quarter when bad loans climbed. The government has told lenders to sacrifice $ 211 billion in profits this year to reduce the worst economic downturn in 40 years. Bad loans hit their highest level in more than a decade, growing at the end of June to 2.7 trillion yuan ($ 389 billion).
Authorities in Beijing have leaned heavily on the $ 41 trillion banking system, led by Industrial & Commercial Bank of China Ltd. Lenders are said to be forgetting profits by providing cheap financing, postponing payments and increasing unsecured loans to small businesses struggling with the pandemic outbreak.
Although the virus relief measures are necessary, authorities cannot ignore the fact that some businesses, residents and even governments are likely to add debt to get in easy access to credit, Guo said. Expectations of lower rates could trigger leverage and speculation, leading to a new round of assets.
Guo also said China would continue this year with the opening of its financial markets to Wall Street companies and other global lenders and asset managers, but reiterated that it would not come at the expense of the nation’s financial sovereignty.
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