BEIJING (AP) ― President Xi Jinping called Tuesday for authorities to curb financial risks as concerns mount in China about rising debts owed by companies and local governments.
Xi’s order, in a speech at a cabinet meeting, came after the government this week announced a nationwide audit of local government debts.
The rare public comments about the economy by China’s president and Communist Party leader come as Beijing faces pressure to reverse a downturn that depressed growth to a two-decade low in the latest quarter.
The government announced a tax cut for small businesses last week but has resisted calls for a more aggressive stimulus. Instead, they say they will push ahead with longer-term reforms aimed at promoting sustainable growth.
On the financial front, analysts worry state-owned banks might face risks due to a rapid rise in borrowing by local governments and Chinese companies, as well as a big, unregulated underground lending market.
Xi said Beijing needs to “strengthen financial supervision and guard against and defuse risks,” the official Xinhua News Agency reported. It gave no details of what steps he told regulators to take.
China’s public and corporate debt levels are relatively low compared with annual economic output. But analysts worry the full extent of borrowing and the potential risks faced by banks might not be fully known. Some warn a rapid rise in debt since the 2008 global crisis could lead to financial problems.
A deputy finance minister, Zhu Guangyao, said this month the total amount of borrowing by local governments was unknown but he also asserted it should be manageable.
The rise in debt stems partly from the aftermath of the 2008 global crisis, when Beijing shored up growth with a flood of spending on building new subways and other public works, much of it financed by banking lending.
Local governments also have borrowed to pay for schools and other social services promised by Beijing. The National Audit Office reported last year that they ran up debts of 10.7 trillion yuan ($1.6 trillion) over the preceding decade, equal to about one-quarter of China’s annual economic output.
Regulators are especially worried about an underground lending market that serves entrepreneurs who cannot get credit from state banks, which lend mostly to government companies.
Beijing tolerated the growth of such “shadow banking,” which channeled money from individual savers to borrowers, as a way to support growth of private businesses. But they were alarmed when they discovered much of the money for such lending was coming from banks, which were failing to report possible higher default risks.
Economic growth slowed to 7.5 percent in the three months ending in June and some analysts say it could dip below 7 percent in coming quarters.
Xi also called for Chinese regulators to press ahead with changes meant to support growth of private companies that generate the country’s new jobs and wealth. He called for promoting energy-saving technology and environmental protection.
There was no mention in Xinhua’s report on his comments of a stimulus or other short-term measures.
Xi called for Beijing to “promote better banking services for the real economy,” according to Xinhua, a reference to promises to make lending by state banks more market-oriented.
Communist leaders have promised to take steps to promote private business and make China’s economy more efficient and productive. But they are not expected to announce major changes until a ruling party meeting in October or November.
The World Bank and reform advocates say drastic changes are required to curb the dominance of state industry if Beijing hopes to keep growth strong.
Last week, Beijing ordered companies to close factories in 19 industries in which supply exceeds demand, affirming its determination to push ahead with a painful economic restructuring despite slowing growth.
The order, following price-cutting wars that jeopardized the financial survival of some companies, applied to more than 1,400 enterprises in industries including steel, cement, copper and glass.
