People’s Republic of China: Financial Sector Assessment Program-Financial System Stability Assessment-Press Release; Staff Report; and Statement by the Executive Director for the People’s Republic of China

The FSSA found that since the last FSAP in 2017, the authorities have made notable progress in strengthening financial supervision and regulation, continuously implementing international regulatory standards, and enhancing systemic risk monitoring. Due to regulatory reforms they also made important reductions, in risks arising from non-bank financial institutions. While bank capital and liquidity levels appear adequate overall, the FSAP concluded that financial stability risks are elevated. Rising vulnerabilities from the property sector downturn and widening strains in highly leveraged local government financial vehicles (LGFV) warrant attention as declining economic growth could affect credit portfolio quality and accommodative monetary policy is weakening banks’ organic profitability, with smaller banks—particularly those with riskier business models—being more vulnerable.