China's top financial regulator has issued a warning of the possible bursting of asset and real estate bubbles after the nation rolled back relief measures implemented during the coronavirus pandemic.
The nation's banking and insurance regulator said banks should implement protective measures to protect themselves from the rise of nonperforming assets. The sudden increase of these can be traced back to when the central bank encouraged borrowers to lower rates to help companies withstand the fallout of the health crisis.
"The default rate for some large and medium-sized enterprises has risen, and the credit risk at banking institutions has intensified," Guo Shuqing, the chairperson of the China Banking and Insurance Regulatory Commission said.
Guo said credit risk, particularly within the nation's local real estate industries, has increased to "serious" levels. Guo said the situation could exacerbate the already rising corporate bond defaults, which were already at alarming levels even before the pandemic.
Last year, corporate bond defaults rose to $12 billion, according to the Institute of International Finance. The People's Bank of China said the relief measures imposed increased new loans to a record $3 trillion last year.
Guo said investors should be aware of the potential losses that could be incurred with derivative products and commodity-linked futures. He said Ponzi schemes, shadow banking activities and other illegal finance systems could also contribute to losses.
Guo said his agency is working to clean up illegal security issuance activities to help mitigate the effects of the growing risks. Guo said China's markets are doing considerably well when compared with other nations, which he commented were still "unprecedentedly loose."
"These measures have stabilized the market in (the) short-term but require all countries in the world to share responsibility for the negative effects," Guo said.
Commenting on global markets, Guo said inflation has arrived in some developed countries much sooner than analysts had expected. He said global inflation could also last longer than expected.