PBOC cautious of optimism during pro-cyclical periods
China will fend off risks from excessive optimism that could lead to a "Minsky Moment", central bank governor Zhou Xiaochuan said on Thursday, noting that corporate debt levels are relatively high and household debt is rising too quickly.
A Minsky Moment is a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures. The theory is named after economist Hyman Minsky.
"If there are too many pro-cyclical factors in the economy, cyclical fluctuations are magnified and there is excessive optimism during the period, accumulating contradictions that could lead to the so-called Minsky Moment," Zhou, governor of People's Bank of China (PBOC), said on the sidelines of the ongoing 19th National Congress of the Communist Party of China. "We should focus on preventing a dramatic adjustment."
China will control risks from sudden adjustments to asset bubbles and will seriously deal with disguised debt of local government financing vehicles, Zhou said.
Still, China's overall debt levels could decline as long as authorities keep a tight control on credit, he said.
Worries about a rapid buildup in China's debt prompted S&P Global Ratings to cut China's sovereign credit rating last month. China's finance ministry said S&P's downgrade was a "wrong decision".
The IMF said in August it expected China's total non-financial sector debt to rise to almost 300 percent of its GDP by 2022, up from 242 percent last year.
Zhou also said that the trading range of the yuan exchange rate was not a key issue at the moment, and that the width of the yuan's current band rarely constrains supply and demand.
"Sometimes a widening of the exchange rate's floating range is a signal that [China's] opening-up will move forward. But this is not the key focus currently," he said.
The central bank is considering a widening of the yuan's trading band after the key congress, Reuters reported in August, citing sources.