Nov 29, 2019 - World

China's financial stability could be at risk

Rashaan Ayesh

Chinese Yuan going through a counting machine at a bank — Photo: STR/AFP/Getty Images

China's financial stability is at risk as the number of defaults continues to rise, and weak banks threaten the world's second-largest economy, Bloomberg reports.

Why it matters: Chinese officials are wary of stepping in because they don't want to encourage "moral hazard and reckless spending," Bloomberg writes.

The state of play: The stability of small banks is one of the major concerns as their relationship with state-owned regional companies could lead to a "downward spiral" if Beijing doesn't stop in, Bloomberg notes.

China's central bank and other regulators said "they are forcing troubled banks to increase capital, cut bad loans, limit dividends and replace management," Bloomberg writes.
A sweeping package is being floated around that would push smaller banks to merge with the support of local governments.

The bottom line: Some support measures might help China's economy and financial stability right now, but it could lead to even bigger debt problems in the future, per Bloomberg.

Go deeper: China's economy grows at slowest pace since 1992

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China's financial stability could be at risk

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