The reforms announced after the Third Plenum might not offer a enough to guarantee financial stability in China, writes financial specialist Sara Hsu in Triple Crisis. China’s financial authorities should focus on shadow banking, in stead of monetary tightening that could slow down economic growth.
China financial scholars are eminently aware that something grim lies ahead and many are hopeful that the Third Plenum this weekend will resolve some of the negative financial outlook. To me, it’s not obvious that the Third Plenum will automatically resolve China’s financial instability—it seems the only way to really overcome this unstable “speculative spread” is to specifically target the shadow banking sector to curb its activity. It has been noted that monetary tightening will lead to a slowdown in credit growth and GDP, but it may not have the effect of curbing the shadow banking sector as opposed to M3, and could even exacerbate the speculative spread. Therefore policy aimed directly at the shadow banking sector is a far better idea—it could eliminate the threat of financial instability at its root.
China financial scholars are right in fearing the financial instability inherent in China’s current composition of financial flows. As “sexy” as it may be to study illicit financial flows—particularly for those who profit off of them—this is something that should not be overlooked and presents a real threat to the Chinese economy.
The Third Plenum
Labor camps, the one-child policy, hukou’s, pollution, internet censorship, state-owned companies, energy policy: they are just a few of the subjects that appeared last week in the 21,000 character document released after the Third Plenum of the Communist Party, spelling out reform plans for the coming years. The +China Weekly Hangout plans to discuss some of those plans and will ask panelist whether the Third Plenum did bear a mouse or an elephant. Pending a few logistical challenges, we will hold our online meeting on 21 November at 10pm Beijing time, 3pm CET and 9am EST. We will pick subjects, depending on the expertise of the people joining us on Thursday, and summarize with the question how likely it is president Xi Jinping will pull off the planned reforms.
Is China going to collapse under the burden of its debts, the China Weekly Hangout asked on August 31? Yes, if they do not play their cards rights, tells Sara Hsu, leading expert on shadow banking in China. Questions are asked by Fons Tuinstra of the China Speakers Bureau.