China.com recently reported that, at a recent press conference, Zhou Xiaochuan, the governor of China’s central bank, expressed his views on “systemic financial risks.” He proposed that the bottom line of China’s risk control should be to get prepared for stopping any kind of “severe adjustment” in the economy when China faces its Minsky Moment. A Minsky moment, named after U.S. economist Hyman Minsky, is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and the increasing value of investments lead to increasing speculation using borrowed money. As part of Zhou’s further explanation, he gave examples about China’s debts, especially company bonds and local government debts (channeled through local financial platforms). Zhou emphasized the importance of taking this issue seriously.
Source: China.com, October 20, 2017