Speaking at a financial forum this past weekend, Chen Yulu, Deputy Governor of the People’s Bank of China, warned of higher risk with financial institutions as internet finance, including peer to peer lending, become more intertwined.
According to a report in ChinaNews, the situation has “become mutually contagious.”
Chen stated;
“The existing supervision framework is not compatible with the problems in the financial sector.”
An ominous statement.
Chen cautioned that sectors like agriculture and other SMEs remain short of funds and thus financial firms must do a bette job supporting the real economy. But regulators must be on the lookout for systemic risks. These comments come at a time when government officials are taking a more proactive role in curtailing dubious internet finance firms. The collapse of Ezubao, perhaps the best known recent case of financial fraud, has been followed by several other internet finance firms being shut down.
The report warned that this “diversity and sophistication” of new business models bring rising risks. The comments by Chen are indicative of the balancing act government officials are required to follow. The Chinese economy demands efficient access to capital – something internet finance clearly provides. At the same time the rapid growth of this sector, the largest in the world, means growing government oversight is required.