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(Bloomberg) – China’s leading banking watchdog has warned that the dominance of the U.S. dollar combined with the massive stimulus triggered by the Federal Reserve could push the world to the brink of yet another financial crisis.
In a rare act of public criticism, the chairman of the China Banking Regulatory Commission, Guo Shuqing, also criticized developed countries that sought to deflect the blame for their own failures to contain the virus outbreak and the actions taken by them. United States to blacklist Chinese companies and entities.
“In an international monetary system dominated by the US dollar, the United States’ unprecedented and unlimited quantitative easing policy actually consumes the dollar’s solvency and erodes the foundations of global financial stability,” Guo wrote in an article. published in the Communist Party’s Qiushi. magazine on Sunday. “The world may again be pushed to the brink of a global financial crisis.”
Relations between the world’s two superpowers have deteriorated rapidly in recent weeks, spanning everything from the coronavirus to trade and defense matters to monetary policy. The two have imposed concurrent sanctions against senior officials and politicians in a stalemate over Beijing’s crackdown on Hong Kong, prompting Chinese lenders to scrutinize their accounts so as not to jeopardize their access to crucial dollar funding.
As for the Chinese financial system, Guo warned that “after the black swan of the pandemic, the quality of its assets will inevitably deteriorate” because the current classifications of loans do not reflect their true quality and the profits of banks on paper are swollen.
The combined profits of China’s more than 1,000 commercial banks fell the most in at least a decade in the second quarter, as bad loans soared. The government has told lenders to sacrifice $ 211 billion in profits this year to ease the worst economic crisis in 40 years. Bad debts hit their highest level in more than a decade, rising to 2.7 trillion yuan ($ 389 billion) at the end of June.
The Beijing authorities have relied heavily on the $ 41 trillion banking system, run by the Industrial and Commercial Bank of China Ltd.
While virus control measures are necessary, authorities cannot ignore that some businesses, residents and even governments are likely to get into debt with easy access to credit, Guo said. Expectations of lower rates could trigger leverage and speculation, leading to another wave of asset bubbles.
Guo also said China will continue to open up its financial markets this year to Wall Street companies and other global lenders and asset managers, but reiterated that this will not come at the expense of “financial sovereignty. ” from the country.
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