MNI POLICY: China Needs Stable Leverage, Reforms: PBOC Yi

China should maintain a stable macro leverage ratio to balance growth and risk and allow for long-term economic expansion, the PBOC's governor wrote in a policy analysis piece on Tuesday, warning against overly stimulative policies and excessive reliance on bank debt financing, which he said could drive up the ratio.

Yi Gang urged faster reform and greater transparency in the securities market to develop direct financing, especially equity financing, to better support the real economy. In the editorial that was later published on the bank's social media account, he said the financial sector should ensure ample liquidity and reasonable credit growth through countercyclical adjustments and provide targeted support to businesses producing essential goods and those worst hit during the pandemic.

Better risk management is necessary as China opens up its financial industry, reforms the exchange rate formation process and moves toward capital account convertibility, Yi said.

LAND PRICES

Turning to the real estate sector, Yi said China should optimise land supply to stabilise land and house prices. Local governments should monitor the income to debt ratio of residents and the concentration of housing loans and aim to reduce their own reliance on land revenue, he said.

Yi also warned against illegal collection of funds and lending and said that financial institutions must operate under legal licenses.