PBOC’s Zhou Warns Of “Sudden, Complex, Hidden, Contagious, Hazardous” Risks In Global Markets
Just two weeks after warning of the potential for an imminent ‘Minsky Moment’, Chinese central bank governor Zhou Xiaochuan has penned a lengthy article on The PBOC’s website that warns ominously of latent risks accumulating, including some that are “hidden, complex, sudden, contagious and hazardous,” even as the overall health of the financial system appears good.
The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion.
And then at the latest Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following;
“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”
Yet, stock markets shrugged off his warning… while the Chinese yield curve has now been inverted for 10 straight days – the longest period of inversion ever…
Which appears to be why he wrote his most recent and most ominous warning yet… (as Bloomberg reports)
The nation should toughen regulation and let markets serve the real economy better, according to Zhou.
The government should also open up financial markets by relaxing capital controls and reducing restrictions on non-Chinese financial institutions that want to operate on the mainland, he wrote.
…click on the above link to read the rest of the article…
