IMF Staff Country Reports

This paper presents People’s Republic of China’s Financial System Stability Assessment (FSSA) report. The FSSA found that since the last FSAP in 2017, the authorities have made notable progress in strengthening financial supervision and regulation, continuously implementing international regulatory standards, and enhancing systemic risk monitoring. Due to regulatory reforms, they also made important reductions, in risks arising from non-bank financial institutions. Rising vulnerabilities from the property sector downturn and widening strains in highly leveraged local government financial vehicles (LGFV) warrant attention as declining economic growth could affect credit portfolio quality and accommodative monetary policy is weakening banks’ organic profitability, with smaller banks—particularly those with riskier business models—being more vulnerable. Continued enhancement of regulation and supervision will ensure regulatory frameworks remain commensurate with the scale and complexity of the financial system—which will require additional resources and a further strengthening of analytical capacity. While the authorities have taken steps to address banking system weaknesses, the current crisis management framework does not adequately support the full range of options needed to manage systemic distress.