China is studying ways to manage capital inflows to prevent turbulence in the domestic market as the authorities are "very worried" about the risk of bubbles bursting in foreign markets, its top banking and insurance regulator said yesterday.
Global markets are starting to see side effects of fiscal and monetary policy steps in response to the Covid-19 pandemic, Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, told a news conference.
"Financial markets are trading at high levels in Europe, the United States and other developed countries, which runs counter to the real economy," Guo added.
As the economy has become highly globalized, foreign capital flowing into China will increase significantly due to economic recovery and attractive asset prices, Guo said.
China's benchmark stock indexes gave back earlier gains and the yuan weakened after Guo's remarks. The onshore yuan fell to a two-week low of 6.4699 per US dollar.
In Hong Kong, the Hang Seng Index closed 356 points lower at 29,095 yesterday. About HK$233 billion worth of shares were traded, with a net outflow of mainland investors of HK$1.82 billion through the Stock Connect.
Guo also highlighted bubble risk as a core issue facing China's property sector. If the housing market goes down, the value of properties held by people will suffer from huge losses, leading to a vicious cycle of unpaid mortgages and economic chaos, he said.
Guo said China would continue some policies, including pushing banks to surrender some profits, to support the real economy, but he expected lending rates to rise this year in tandem with higher market interest rates.
"Because market interest rates have been picking up this year, I expect lending rates to rebound also," Guo said.
He said China's fintech companies are expected to meet capital adequacy requirements within a maximum of two years.
Guo also said the central government is backing more mainland firms to raise funds in Hong Kong through equities and bonds, and that financial firms in Hong Kong should adhere to local laws and should not be bound by US sanctions.