U.S. subprime crisis sounds alarm for China's financial system

The global financial turmoils triggered by the U.S. subprime crisis have lately become front-and-center topics of the whole financial community. Experts gathering at the China Economic Development Forum in Beijing yesterday expressed their opinions on the possible consequences of the subprime crunch on China.

The majority of the experts believed that the impact of the US subprime crisis on China's financial and capital markets is limited and felt more on the psychological level. However, it is necessary for us to consider the risks in China's financial markets and start working on the loopholes in our financial system.

Despite of its limited influence, China also needs to learn from the US subprime meltdown and reinforce supervision of the domestic mortgage market, Zheng Jingping, chief engineer of the National Bureau of Statistics, was quoted as saying at the forum.

Wu Jinglian, the famous Chinese economist held that the consequence of the US subprime crunch is yet to be seen and whether the efforts of all world major central banks to inject capital to boost market liquidity can pay off also can not be told now. However, he pointed out, China, with its still fragile financial system, must move fast to solve existing problems and patch up similar loopholes, because he thought excessive liquidity poses more danger and challenges to China.

Ba Shusong, deputy director of the Financial Research Institute of the State Council's Development Research Center, said that the US subprime problem lay in the assumption of benign operation of the entire subprime mortgage market and stable rises in house prices. So in face of acute price fluctuations, the impact on economy was unimaginable. Ba further added China needed to sum up the lessons learned and take necessary balance measures for the domestic real estate markets.

China must come to the realization that risks exist in financial innovation and that bubbles are bound to bust at certain time, therefore, it is essential to watch out for the potential market risks, especially for China, whose financial industry is still in its infancy, which means our market, compared with the mature financial markets in developed countries, is much weaker, Fan Gang, commissioner of the central bank's Monetary Policy Committee, was cited saying.

As for the psychological impact on China's stock markets, at issue are the disputes over the prices of companies dual-listed both in China and U.S. In addition, some QFIIs may withdraw part of their investments from the mainland stock markets, due to the capital crunch faced by their parent companies. But the profit-making capabilities will prove to be the fundamental support for their market performance, Ba Shusong finally expressed.