Potential risks in financial system are being addressed

China's central bank expressed confidence in the stability of the country's financial system on Thursday after an assessment report by the International Monetary Fund highlighted potential risks.

The report, which is part of the update of the China Financial Sector Assessment Program first carried out in 2009-11, acknowledged the achievements that have been made in implementing economic and financial reforms, but also said that the increasing complexity of China's financial system has sown seeds that undermine its stability.

While calling the recommendations highly relevant in the context of deepening financial reform in China, the People's Bank of China said there were descriptions and views in the reports it did not agree with, such as those of the outcomes of the stress testing of lenders, which it felt did not reflect the true situation and the strong capability of China to fend off potential risks.

As July's National Financial Work Conference showed, the country's leaders are well aware of the potential risks and they have been proactive in taking measures to address them.

A new Financial Stability and Development Committee has been tasked with the deliberation and coordination of major issues concerning financial stability and related reforms, while the PBOC has been given a bigger role in macro-prudential management and greater responsibility for averting systemic risk in the financial system.

It has already widened its macro-prudential assessment framework to include off-balance-sheet wealth management products, and will include more financial activities and institutions next year.

One aspect of the financial system that has already benefited from stricter scrutiny is the securities market, where thanks to efforts by the securities regulator to ensure only qualified companies go public, fraudulent practices that were prevalent in the past, such as inflating financial performance or the use of fabricated documents for IPO applications, are no longer prevalent.

There is still much work to be done, as the PBOC acknowledged. But it said the country will draw on the IMF's recommendations as it deepens its financial reforms.