China’s former finance minister reflects on risks from SVB collapse

At this year’s Global Asset Management Forum in Beijing, Gao Ang sat down with China’s former finance minister Lou Jiwei, to discuss whether risks arising from the collapse of the Silicon Valley Bank in the United States could affect China and Asia more broadly.

GAO ANG, CGTN Reporter “Mr. Lou, thank you for speaking to CGTN. The collapse of California’s Silicon Valley Bank has triggered a wave of volatility in the global banking sector. What are some of the possible contagion risks for the emerging market? Do you expect them to spill over to Asia and China?”

LOU JIWEI, China’s Former Finance Minister “The risks from Silicon Valley Bank and Credit Suisse will not be directly transmitted to China. There are two reasons. The first reason is that China is cyclically misaligned with Europe and the United States. They are raising interest rates substantially, and we are beginning to cut interest rates, cut RRR and expand fiscal policy. Second, our financial supervision and the operation of financial institutions used to be weak and chaotic, but after the last few years, we have made up for it. In the United States, for example, they used to strengthen financial supervision, but later relaxed it for a while. For example, Silicon Valley Bank has left the scope of those banks in the Fed’s stress test. It should be said that the impact on China is not very great. A relatively large impact is the continued interest rate hike, so the funds will flow back to the United States and Europe. So, it will have a relatively large impact on other developing countries. The pressure on us in this regard is not particularly great, and we are not a particularly vulnerable country.

China’s reform of the financial management and regulatory agencies has one purpose, and that is to supervise and deal with financial risks uniformly. We can also see that there were some regulatory loopholes in the past which caused problems such as regulatory arbitrage. These problems need to be solved step by step. Now some mechanisms have been established to solve some of these financial risks. The reform of financial regulatory institutions will further strengthen supervision.”
Source: CGTN