On June 10, Guo Shuqing, Secretary of the CPC Committee of the People's Bank of China (PBoC) and Chairman of China Banking and Insurance Regulatory Commission, delivered a speech focusing on financial risks at the 13th Lujiazui Forum.

Guo mentioned that China needs to actively respond to the rebound of non-performing assets. He pointed out that micro-, small- and medium-sized enterprises affected by the COVID-19 pandemic are allowed to suspend repayment of loan principal and interest, and it is expected that a certain percentage of loans will eventually become non-performing loans. The real estate bubble in some localities is prone to serious financialization, a considerable number of government financing platforms are under great pressure of debt repayment, and the debt default ratio of some large and medium-sized enterprises is on the rise, which aggravates the credit risk of banking institutions. He also pointed out that China should strictly guard against the resurgence of shadow banking. Guo added that after the rectification measures, the scale of shadow banking in China has dropped RMB 20 trillion from the historical peak. That said, the scale of shadow banking in China is still large, and easy to rebound. According to Guo, China should also resolutely crackdown on all kinds of illegal public issuance of securities. He noted that here are still a lot of financial products in the financial market called "private placement" which is actually a "public offering". In addition, Guo stated that China should effectively guard against financial derivatives investment risks, and be wary of all kinds of "Ponzi scheme".

It is worth noting that Guo has stressed the issue of financial derivatives risk. He said that a large number of individual investors were involved in previous cases of risky derivatives investment. From the perspective of mature financial markets, financial derivatives are mainly traded by institutional investors, which are not suitable for personal investment and financial management. This is due to the price of financial derivatives fluctuates greatly under the influence of uncontrollable and even unpredictable factors, which requires a high level of professionalism and risk tolerance from investors. "The participation of ordinary individual investors in financial derivatives is a disguised gamble, and their losses are already predestined", Guo said. "Those who speculate in foreign exchange, gold and other commodity futures stand little chance of becoming rich, just as those who bet that house prices will never fall will end up paying a heavy price".

As one of the most important officials in China's financial regulatory authorities, Guo's remarks will not be regarded as a personal view, but rather as a public policy statement, representing some kind of policy stance of the financial regulatory authorities. As such, his speech has aroused a lot of concern in the market, and many market participants have raised doubts about it. According to the observations of ANBOUND's researchers, the market's doubts are mainly focused on several aspects: (1) The speech placed a high emphasis on preventing all kinds of financial risks, and the overall tone was strict supervision and control. In this case, how can regulators balance regulation with financial market development? (2) The speech defined personal involvement in financial derivatives investment as "gambling in disguised", pointing out that those who speculate in foreign exchange, gold, and other commodity futures can hardly get rich; (3) The speech also dealt a blow to property speculators, arguing that those who bet on rising house prices will end up paying a heavy price.

Guo's statement is not wrong; it is actually in line with the situation and politically correct. In fact, it goes beyond the vision of a single institution such as the China Banking and Insurance Regulatory Commission or the People's Bank of China and tries to assess China's financial risks from an overall perspective. For example, the central government has attached great importance to financial risk prevention in recent years, making financial risk prevention a top priority. Another example is cracking down on property speculators, which is also in line with policy makers' thinking that "housing is not for speculation". Therefore, it is hard to argue that Guo's statement is incorrect, whether in terms of academic discourse or policy trends.

However, given China's needs and the development of countries in the context of international geopolitics, what seems to be missing from that policy statement is causing market participants to feel uneasy, and quite a few market participants think Guo's statement lacks the focus on development. After several rectifications in recent years, the biggest task facing China's financial markets is not just to passively strengthen financial regulation and prevent financial risks, but the biggest task facing it is actually the issue of development. As some market participants had stated, the speeches from the main financial regulators were more about strict regulation, warning of various risks, and what not to do, but less about how to develop China's capital markets. There is nothing wrong with the general principle of preventing financial risks, which is indeed a constant theme in the development of the financial industry. However, it is important to note that preventing financial risks itself is not the ultimate goal, but means to ensure the better development of the financial market.

The "cycles" of the Chinese stock market are clearly noticeable, where the market index hovered at a low level for decades, and the few times it rose quickly turned into a huge crash. Even if the chairman of the China Securities Regulatory Commission has been replaced many times, and rectification and supervision are frequently mentioned, it still does not help the development of the Chinese stock market. From a macro perspective, the development of China's stock market is out of proportion to the country's overall economic development and comprehensive national strength improvement. Since 2008, the development of capital markets in developed countries has led the world into an era of substantial credit expansion and high capital surplus. The U.S. stock market has risen from more than 6,000 points in 2009 to 34,447 points today, successfully using the global credit expansion to avoid the impact of the financial crisis and the pandemic, becoming the largest beneficiary in the global capital market. In an era where modern monetary theory (MMT) is gradually gaining momentum, China's stock market cannot afford to miss the opportunity for long-term development. In comparison, the expansion and development of China's bond market is much better than that of the stock market, and it has well-developed and attracting foreign capital inflows.

In addition, financial risks should be assessed from the perspective of development. In fact, the continuous outbreak of various risks is a reflection of various problems in the development of China's financial market, which needs to be constantly adjusted and changed to resolve. However, it should be noted that after years of wealth accumulation, the Chinese have a strong demand for investment and wealth management, which needs to expand the space of the financial market. Regulators should "develop the financial market while strengthening supervision". Indeed, both the problems of P2P lending and real estate speculation reflect the strong demand for investment in Chinese society. Therefore, risk prevention still needs reasonable guidance to provide investors with a healthy and orderly financial market. The financial market should be well developed to avoid all kinds of unconventional financial risks.

Final analysis conclusion:

The most crucial task facing China's financial market is development, and the purpose of preventing financial risks is for the better development of the financial market. From a macro and long-term perspective, stagnant development and lagging behind global market conditions are the biggest systemic risks in China's financial market.