Chinese regulator calls US lending 'ridiculous'By JOE McDONALD updated 7:02 a.m. ET Sept. 27, 2008Font size: TIANJIN, China - U.S. lending standards before the global credit crisis were "ridiculous," and the world can learn from China's more cautious system as it considers financial reforms, the top Chinese bank regulator said Saturday.
Beijing curbed mortgage lending in 2003 and 2006 to keep debt manageable amid a real estate boom, while American regulators responded to a similar situation by letting credit grow, said Liu Mingkang, chairman of the Chinese Banking Regulatory Commission.
"When U.S. regulators were reducing the down payment to zero, or they created so-called `reverse mortgages,' we thought that was ridiculous," Liu said at the World Economic Forum in this eastern Chinese city. He said debt in the United States and elsewhere rose to "dangerous and indefensible" levels.
Liu's comments were unusually pointed criticism of U.S. financial regulation for a Chinese official. They added to suggestions by countries that are under U.S. pressure to liberalize their financial markets that Washington's model might not be ideal.
China has based its reforms on the United States but has moved gradually. It has kept its financial markets isolated from global capital flows, prompting complaints by its trading partners.
As China made changes, Liu said, "a lot of the time, we learned that what we had learned from our teacher the day before was wrong."
China's state-owned banks have avoided the turmoil roiling Western markets. Chinese banks hold bonds from failed Wall Street house Lehman Brothers, but they are a tiny fraction of their vast assets.
Liu compared Washington's proposed $700 billion plan to revive credit markets to fast food and said the world needed to look at longer-term solutions.
"Fast food is convenient. This $700 billion package must ease the concerns and build up confidence. But if you only take this, it doesn't agree with your stomach. You should think about Chinese slow cooking and slow food," he said, prompting laughter from his audience.
Liu called for governments to create international standards and regulatory systems for globalized financial markets. He said Beijing has signed information-exchange agreements on financial regulation with 32 other countries since the turmoil began.
Liu pointed to China's experience with real estate and the collapse of a stock market boom.
As stock prices soared, banks were ordered to make sure customers were not using loans or credit cards to finance speculation. As a result, Liu said, even though stock prices have plummeted 63 percent since the October peak, banks have suffered no rise in loan defaults.
"We Chinese can share our own experiences with all the market practitioners," Liu said. "Maybe our experience cannot be applicable to developed markets fully. But still, I think it might be useful and helpful to those in emerging markets."
The crisis is likely to increase the influence of China and other emerging economies in the world financial system, though Wall Street will retain its leading role, said Chinese and foreign businesspeople at the conference, the Chinese leg of the forum based in Davos, Switzerland.
"I believe this kind of regional financial strength will play a bigger and more important role," said Jiang Jianqing, chairman of state-owned Industrial & Commercial Bank of China Ltd., the world's biggest commercial lender by market capitalization.
"Right now the market is very unitary," with U.S. bonds dominating global holdings, Jiang said. "This kind of a unitary, over-centralized market is something we need to change." Still, he said, Wall Street's "dominance will continue."
The European Union trade commissioner, Peter Mandelson, defended the global capital markets structure, warning that drastic change might hurt prosperity.
"The capital market system, fundamentally, is not flawed," Mandelson said. "We are not looking for some alternative, and I hope that people in the emerging markets, in China for example, are not looking for an alternative to properly functioning capital markets."
The crisis is likely to reduce resistance in the West to investments by government funds as companies urgently seek capital, said Thomas Enders, CEO of the European aircraft producer Airbus Industrie.
Critics have questioned the possible political motives of state-run funds and an EU official warned last year they might face restrictions if they fail to disclose more information about their goals and tactics.
"I would dare to predict that, yes, one of the big changes we will see is greater acceptance of sovereign wealth funds," Enders said.
Beijing curbed mortgage lending in 2003 and 2006 to keep debt manageable amid a real estate boom, while American regulators responded to a similar situation by letting credit grow, said Liu Mingkang, chairman of the Chinese Banking Regulatory Commission.
"When U.S. regulators were reducing the down payment to zero, or they created so-called `reverse mortgages,' we thought that was ridiculous," Liu said at the World Economic Forum in this eastern Chinese city. He said debt in the United States and elsewhere rose to "dangerous and indefensible" levels.
Liu's comments were unusually pointed criticism of U.S. financial regulation for a Chinese official. They added to suggestions by countries that are under U.S. pressure to liberalize their financial markets that Washington's model might not be ideal.
China has based its reforms on the United States but has moved gradually. It has kept its financial markets isolated from global capital flows, prompting complaints by its trading partners.
As China made changes, Liu said, "a lot of the time, we learned that what we had learned from our teacher the day before was wrong."
China's state-owned banks have avoided the turmoil roiling Western markets. Chinese banks hold bonds from failed Wall Street house Lehman Brothers, but they are a tiny fraction of their vast assets.
Liu compared Washington's proposed $700 billion plan to revive credit markets to fast food and said the world needed to look at longer-term solutions.
"Fast food is convenient. This $700 billion package must ease the concerns and build up confidence. But if you only take this, it doesn't agree with your stomach. You should think about Chinese slow cooking and slow food," he said, prompting laughter from his audience.
Liu called for governments to create international standards and regulatory systems for globalized financial markets. He said Beijing has signed information-exchange agreements on financial regulation with 32 other countries since the turmoil began.
Liu pointed to China's experience with real estate and the collapse of a stock market boom.
As stock prices soared, banks were ordered to make sure customers were not using loans or credit cards to finance speculation. As a result, Liu said, even though stock prices have plummeted 63 percent since the October peak, banks have suffered no rise in loan defaults.
"We Chinese can share our own experiences with all the market practitioners," Liu said. "Maybe our experience cannot be applicable to developed markets fully. But still, I think it might be useful and helpful to those in emerging markets."
The crisis is likely to increase the influence of China and other emerging economies in the world financial system, though Wall Street will retain its leading role, said Chinese and foreign businesspeople at the conference, the Chinese leg of the forum based in Davos, Switzerland.
"I believe this kind of regional financial strength will play a bigger and more important role," said Jiang Jianqing, chairman of state-owned Industrial & Commercial Bank of China Ltd., the world's biggest commercial lender by market capitalization.
"Right now the market is very unitary," with U.S. bonds dominating global holdings, Jiang said. "This kind of a unitary, over-centralized market is something we need to change." Still, he said, Wall Street's "dominance will continue."
The European Union trade commissioner, Peter Mandelson, defended the global capital markets structure, warning that drastic change might hurt prosperity.
"The capital market system, fundamentally, is not flawed," Mandelson said. "We are not looking for some alternative, and I hope that people in the emerging markets, in China for example, are not looking for an alternative to properly functioning capital markets."
The crisis is likely to reduce resistance in the West to investments by government funds as companies urgently seek capital, said Thomas Enders, CEO of the European aircraft producer Airbus Industrie.
Critics have questioned the possible political motives of state-run funds and an EU official warned last year they might face restrictions if they fail to disclose more information about their goals and tactics.
"I would dare to predict that, yes, one of the big changes we will see is greater acceptance of sovereign wealth funds," Enders said.
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