Nonperforming loans, shadow banking and local debt key supervision areas

China should be prepared to fight a protracted and tough battle against financial risks, said a senior official of the country's top banking and insurance regulator.

"We have made progressive achievements in preventing and defusing financial risks, but many potential risks are not fully eliminated yet and our previous accomplishments in risk mitigation still need to be consolidated," Wang Zhaoxing, vice-chairman of the China Banking and Insurance Regulatory Commission, said at a news conference on Monday.

He stressed that the regulator will closely monitor several key areas of risks. First of all, the CBIRC will continue to step up efforts to dispose of the existing nonperforming loans while effectively containing the growth of new bad loans.

Official data show that the Chinese banking sector disposed of a total of 3.48 trillion yuan ($520.41 billion) in nonperforming loans during the past two years.

Meanwhile, the regulator will always pay attention to preventing the liquidity risks of small and medium-sized banks and insurance companies under pressure from slower economic growth and financial market fluctuations, Wang said.

The CBIRC will also keep watching policy arbitrage and shadow banking activities that will raise financial leverage, as well as financial risks in the housing sector by implementing prudent risk management standards on real estate development loans and mortgage loans, he added.

In the past two years, the amount of China's high-risk assets including interbank transactions and off-balance sheet activities shrank by around 12 trillion yuan, according to the CBIRC.

Wang added that the regulator would continue to coordinate with relevant government departments to dispose of local government debt, apart from enhancing its regulatory capabilities and bolstering areas of regulatory weakness.

The news conference was held by the State Council Information Office after Xi Jinping, general secretary of the Communist Party of China Central Committee, highlighted that China should maintain a fine balance between maintaining growth and forestalling risks and deal with risks in key areas in a targeted and effective manner.

"Risk prevention must be done in a way that can push ahead high-quality economic development," Xi said when presiding over a group study session of senior Party leaders on Friday. He said preventing and defusing financial risks, especially systemic financial risks, are the fundamental tasks of financial work, calling for accelerated construction of the financial market infrastructure and advanced efforts to nationalize key information infrastructure in the sector.

Zhou Liang, vice-chairman of the CBIRC, said the regulator is trying to prevent and control financial risks under the premise that China will maintain steady and sustainable economic growth. It has so far established 19,000 creditor committees to experiment with joint credit grants for nearly 500 large and medium-sized enterprises.

The regulator will soon launch specific measures guiding financial institutions to better serve private enterprises, Zhou said.

As of the end of 2018, the balance of loans offered by banking institutions to small and micro-sized enterprises, as well as small and micro-business owners, was 33.5 trillion yuan. Among the total, small and micro-sized enterprise loans with a total credit line of no more than 10 million yuan for each borrower increased by 21.8 percent from the beginning of last year to 9.4 trillion yuan.