December 23, 2017 / 9:38 AM / 3 years ago

China needs to continue reducing financial leverage: central bank deputy governor

FILE PHOTO: Yi Gang, deputy central bank governor of the People's Bank of China, attends a news conference during the ongoing National People's Congress (NPC), China's parliament, in Beijing China March 10, 2017. REUTERS/Jason Lee

SHANGHAI (Reuters) - China must proactively but gradually reduce debt in the economy to prevent the buildup of financial risks, state news agency Xinhua quoted China’s central bank’s deputy governor as saying on Saturday.

Yi Gang made the comments at a meeting about China’s economy in Beijing, Xinhua said.

“We have to resolutely fight the battle to prevent risks and first have to control overall leverage by proactively, safely and steadily deleveraging,” he said.

China’s state planner in September said that the growth of China’s overall leverage ratio has clearly been slowing and is now stabilizing. However, ratings agency S&P Global Ratings has said that China’s attempts to reduce debt risks so far this year were not working as quickly as expected.

A separate report on Saturday by Xinhua on how the country’s 2016 central government budget was spent illustrates the scale of the issue Beijing faces.

Hu Zejun, head of the National Audit Office, said in the report a government-organized team had terminated or amended 25.35 billion yuan ($3.86 billion) worth of illegal local authority debts and was working on a program to resolve a further 28.37 billion yuan worth of debts.

The country has launched policies aimed at reducing debt and leverage amid fears that such problems could derail the world’s second-largest economy if not handled properly.

A statement issued on Wednesday after China’s annual economic conference, which is attended by China’s top leaders and keenly watched by investors for clues on policy priorities, however, made no mention of the need to lower corporate leverage, in contrast to last year’s readout.

The state planner said in August that such efforts had elicited some results but that excessively high leverage ratios of Chinese firms had still not been reversed, with non-financial Chinese firms’ leverage ratios still the highest among the world’s top economies.

Reporting by Brenda Goh; Editing by Sam Holmes

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