China Must Ensure Risks Don’t Become Systemic, Li Says

March 13 (Bloomberg) -- China must ensure that financial risks don’t threaten the entire system even as some defaults are unavoidable, Premier Li Keqiang said.

China pays great attention to financial risk and is monitoring dangers from shadow banking, Li said at a briefing today in Beijing after the end of the legislature’s annual meeting. The ratio of government debt to the size of the economy is below an internationally-recognized danger level, Li said without specifying the level.

Leaders are trying to rein in a surge in debt that’s evoked comparisons to the run-ups to Japan’s lost decade and the Asian financial crisis. The nation’s first onshore bond default and the bailout of a high-yield trust product this year have highlighted financial risks that pose a threat to the government’s expansion goal of 7.5 percent.

“Some individual cases may be unavoidable,” Li said, referring to defaults of financial products. “We must enhance monitoring and ensure timely handling to make sure that there are no systemic or regional financial risks,” he said.

The combined debt of Chinese households, corporates, financial institutions and the government rose to 226 percent of gross domestic product last year, up from 160 percent in 2007, Credit Agricole SA estimated in a report last month. GDP reached $9.4 trillion in 2013.

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