China should still be alert to US credit crisis impact

Updated: 2008-04-28 10:19

BEIJING -- China should still be alert to the credit crisis starting in the United States more than one year ago that has afflicted the Chinese financial sector and export, Ou Minggang, deputy editor-in-chief of Chinese Banker magazine, said on Saturday.

Ou told Xinhua during an interview that domestic banks and other financial institutions bear the brunt of the widespread US subprime mortgage crisis, as those agencies' asset value and book earnings would dip to some extent.

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"Currently the impact on domestic financial institutions is still limited," he said.

The Industrial and Commercial Bank of China, the country's largest lender, said at the end of last month its 2007 net profit rose 64.9 percent year-on-year to 82.3 billion yuan (US$11.7 billion).

The Bank of China posted a 31.3 percent net profit rise in 2007 after booking US$1.3 billion as an impairment allowance for its US$4.99 billion in investment in securities linked to US subprime mortgages by the end of last year.

However, the International Monetary Fund (IMF) said on April 8 that the recent financial turbulence triggered by the collapse of the US subprime mortgage market could cost the global financial system to the tune of US$945 billion.

"The global financial system has undoubtedly come under increasing strains since October 2007, and risks to financial stability remain elevated," the IMF warned in its latest Global Financial Stability Report.

Ou said, "The crisis also made Chinese financial supervision regulators face up to the challenges of balancing financial innovation and risks, which requires them to push forward the reforms in the country's financial system in a more cautious manner."

Experts warned that financial risks know no national boundaries and some foreign capital has fled from the Chinese financial market as many banking titans including Citigroup and Merrill Lynch were in deep water in credit crisis.

China's benchmark Shanghai Composite Index, which covers both A and B shares, shrank nearly half from the peak of 6124.04 points of Oct. 16 last year to 3094.67 points on April 18.

The overnight announcement of a cut in share trading taxes drove Chinese stocks 9.29 percent higher in soaring turnover on Thursday, with the key Shanghai Composite Index up 304 points to 3,583.03, the largest gain since Oct. 23, 2001.

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