Peoples Republic of China: Financial System Stability Assessment, Prepared by the Monetary and Capital Markets and Asia and Pacific Departments, Approved by José Viñals and Anoop Singh, released on November 14, 2011
“This report is based on the IMF/World Bank Financial Sector Assessment Program (FSAP) exercise for China undertaken during JuneDecember 2010. The assessment concluded that reforms have progressed well in moving to a more commercially-oriented financial system. Despite success and rapid growth, Chinas financial sector is confronting several near-term risks, structural challenges, and policy-induced distortions. The main sources of risks are: (i) the effects of a rapid crisis-related credit expansion on credit quality, (ii) growing off-balance sheet exposures and disintermediation, (iii) a reversal in rapidly rising real estate prices, and (iv) an increase in imbalances due to the current economic growth pattern. Medium-term vulnerabilitiesthe relatively inflexible macroeconomic policy framework, and the governments important role in credit allocation and in the financial sector at the central and provincial levelsare building up contingent liabilities and could impair the needed reorientation of the financial system to support Chinas future growth.”
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