China to place top priority on risk control

December 05, 2017 11:18
China's central bank is stepping up efforts to prevent risks in the financial system. Photo: Bloomberg

The People's Bank of China recently unveiled some guidelines aimed at curbing financial risk in the asset management industry. The impact of the new rules will gradually be felt in the market.

The nation's asset management industry may contract in the short to medium term. Mainland investors' demand for asset management products may wane. Nevertheless, market demand for quality assets will always increase over the long run.

I believe unqualified financial products have contributed mostly to asset shortage and fund shortage situations in China. Following the tighter rules, such products will be phased out.

There could be temporary shocks to bond market, stock market and the futures market. China's capital market will evolve in the future, and the era of value investment may be around the corner.

As for the outlook for China's economy, export and investment growth are likely to moderate next year, given the rising costs (e.g. environmental protection related costs).

The move to curb corporate debt risk and pollution may indirectly underpin prices of industrial products. However, the producer price index may fall off due to high base of this year. I believe agricultural output prices will edge higher and push up the consumer price index.

Key policy focus will be on poverty alleviation, environmental protection and risk mitigation, such as the prevention of systemic risks.

The full article appeared in the Hong Kong Economic Journal on Dec 4

Translation by Julie Zhu

[Chinese version 中文版]

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Senior investment banker