IMF Warns China of Risks to Financial Sector

Posted November 15th, 2011 at 3:10 am (UTC-5)
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The International Monetary Fund is urging Chinese policymakers to allow their banking system to operate on a more commercially oriented basis.

The Washington-based lender issued a report Tuesday based on stress tests of China’s 17 biggest banks. The IMF says the system appears to be “resilient to isolated shocks” such as a sharp decline in real estate prices, but says it remains vulnerable to a number of factors, including bad loans and heavy government involvement.

The international lender says its full assessment of the risks was hindered by a lack of data, in part due to restrictions on access to confidential figures.

The IMF offered a number of suggestions to policymakers in Beijing, such as giving the central bank greater autonomy over the nation’s banking policy and further relaxing control of its currency.

The People’s Bank of China, the nation’s central bank, responded Tuesday by saying a number of points in the IMF report “are not sufficiently comprehensive or objective.” The bank said it will conduct its own studies on the IMF recommendations, adding that any reforms will be based on the country’s situation.