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IMF Calls for Further Reforms in China’s Financial System

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China’s financial system is robust overall, but faces a steady build-up in vulnerabilities. While significant progress has been made towards developing a more commercially-oriented financial sector, and supervision and regulation are being strengthened, risks stem from the growing complexity of the system and the uncertainties surrounding the global economy. Further reforms are needed to support financial stability and encourage strong and balanced growth, the International Monetary Fund (IMF) says in its first formal evaluation of China’s financial sector published today.
The IMF’s first Financial Sector Assessment Program (FSAP) review of China was carried out jointly with the World Bank. China is one of 25 systemically important countries that have agreed to mandatory assessments at least once every five years. The FSAPs are part of the IMF’s activities in financial surveillance and the monitoring of the international monetary system.
“China’s banks and financial sector are healthy, but there are vulnerabilities that should be addressed by the authorities,” says Jonathan Fiechter, deputy director of the IMF’s Monetary and Capital Markets Department and the head of the IMF team that conducted the FSAP. “While the existing structure fosters high savings and high levels of liquidity, it also creates the risk of capital misallocation and the formation of bubbles, especially in real estate. The cost of such distortions will only rise over time, so the sooner these distortions are addressed the better.”

Risks
According to the FSAP report, China’s financial sector is confronting several near-term risks: deterioration in loan quality due to rapid credit expansion; growing disintermediation by shadow banks and off-balance sheet exposures; a downturn in real estate prices; and the uncertainties of the global economic scenario. Medium-term vulnerabilities are also building and could impair the needed reorientation of the financial system to support the country’s future growth. Moving along this path will pose additional risks, so priority must be given to establishing the institutional and operational preconditions that are crucial for a wide-ranging financial reform agenda.

The main areas of reform should include:

  • Steps to broaden financial markets and services, and developing diversified modalities of financial intermediation that would foster healthy competition among banks;
  • A reorientation of the role of government away from using the banking system to carry out broad government policy goals and to allow lending decisions to be based on commercial goals;
  • Expansion of the use of market-based monetary policy instruments, using interest rates as the main instrument to govern credit expansion, rather than administrative measures;
  • An upgrading of the financial infrastructure and legal frameworks, including strengthening the payments and settlement systems, as well as consumer protection and expansion of financial literacy.

The Chinese authorities have begun to move on many of its recommendations, and the IMF stands ready to provide technical cooperation in areas relating to strengthening the financial stability framework in China.

Stress Tests
Stress tests conducted jointly by the Fund and Chinese authorities of the country’s largest 17 commercial banks indicate that most of them appear to be resilient to isolated shocks, which include: a sharp deterioration in asset quality (including a correction in the real estate markets), shifts in the yield curve, and changes in the exchange rate. If several of these risks were to occur at the same time, however, the banking system could be severely impacted, the report warns.

About the FSAP
The Financial Sector Assessment Program, established in 1999, is an in-depth analysis of a country’s financial sector. The IMF conducts mandatory FSAPs for the 25 jurisdictions with systemically important financial sectors, and any member countries that request it. Assessments in developing and emerging market countries are conducted jointly with the World Bank. FSAPs include two components: a financial stability assessment, which is the responsibility of the Fund; and, in developing and emerging market countries, a financial development assessment, conducted by the World Bank.
To assess the stability of the financial sector, IMF teams examine the soundness of the banking and other financial sectors; rate the quality of bank, insurance, and capital market supervision against accepted international standards; and evaluate the ability of supervisors, policymakers, and financial safety nets to respond effectively to a systemic crisis. While FSAPs do not evaluate the health of individual financial institutions and cannot predict or prevent financial crises, they identify the main vulnerabilities that could trigger one.
In September 2010, the IMF made financial stability assessments under the FSAP a mandatory part of IMF surveillance every five years for jurisdictions deemed systemically important based on the size of the financial sector and their global interconnectedness. The countries affected by this decision are: Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, Italy, Japan, India, Ireland, Luxembourg, Mexico, the Netherlands, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.
Source: www.imf.org

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says 1

By Sonia Elks

(Thomson Reuters Foundation) – Women gained legal rights in nearly 30 countries last year despite disruption due to COVID-19, but governments must do more to ease the disproportionate burden shouldered by women during the pandemic, the World Bank said on Tuesday.

Nations should prioritise gender equality in economic recovery efforts, the bank said, warning that progress on equal rights was threatened by heavier job losses in female-dominated sectors, increased childcare and a surge in domestic violence.

“This pandemic has exacerbated existing inequalities that disadvantage girls and women,” David Malpass, World Bank Group president, said in a statement accompanying the annual “Women, Business and the Law” report.

“Women should have the same access to finance and the same rights to inheritance as men and must be at the centre of our efforts toward an inclusive and resilient recovery from the COVID-19 pandemic.”

A total of 27 countries reformed laws or regulations to give women more economic equality with men in 2019-20, said the report, which grades 190 nations on laws and regulations that affect women’s economic opportunities.

While countries in all of the world’s regions made improvements in the new index – with most reforms addressing pay and parenthood, women on average still have only about three quarters of the rights granted to men, the report found.

Notably, nearly 40 countries brought in extra benefit or leave policies to help employees balance their jobs with the extra childcare needs created by coronavirus restrictions.

But such measures were “few and far between” worldwide and will probably not go far enough to tackle the “motherhood penalty” many women face in the workplace, it said.

The report also noted separate data from a United Nations tool tracking gender-sensitive pandemic responses which found 70% of such measures addressed violence, with just 10% targeting women’s economic security.

The pandemic could result in “a backslide on various hard-won advances in women’s rights achieved in recent years”, said Antonia Kirkland, the global lead on legal equality at women’s rights organisation Equality Now.

“This disruption is a unique opportunity for countries to rebuild more resilient, inclusive and prosperous economies,” she told the Thomson Reuters Foundation by email.

“But this can only be achieved alongside the removal of sex discriminatory laws that prevent women from participating fully and equally in economic, social and family life.”

(Reporting by Sonia Elks @soniaelks; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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Digital health checks vital to travel recovery, Heathrow says

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Digital health checks vital to travel recovery, Heathrow says 2

By Sarah Young

LONDON (Reuters) – Digital health checks will be vital to a recovery in foreign travel from the COVID-19 pandemic, Britain’s Heathrow airport said on Wednesday, after a collapse in passenger numbers saw it plunge to a 2 billion pound ($2.8 billion) loss last year.

The UK government said on Monday trips abroad could restart in mid-May as its vaccination campaign kicks in, sparking a surge in holiday bookings.

It is also looking into a digital health passport or app to help ease restrictions, while conceding the benefits have to be weighed against potential risks to civil liberties.

But Heathrow chief executive John Holland-Kaye said digital technology, and international agreements, would be vital to reviving a travel industry on its knees.

“It’s absolutely critical and that’s one of the main things that government needs to work on,” he said, when asked about a digital health app.

At present, paper checks on COVID-19 test results and passenger locator forms take 20 minutes per traveller at Heathrow, making travel near impossible should passenger numbers rise from current low levels.

Britain’s biggest airport said it was “very likely” people would be able to go on their summer holidays, but expects passenger numbers will take time to recover.

The airport, west of London, is forecasting 25 million passengers in the second half of the year, meaning it would be operating at about 50% capacity.

Heathrow, owned by Spain’s Ferrovial, the Qatar Investment Authority, China Investment Corp and others, last year lost its title as Europe’s busiest airport to Paris after its flight schedules shrank more than those of its rivals.

Passenger numbers plunged 73% to 22 million people last year, with half of those travelling during January and February, before the pandemic shut down global travel in March.

Heathrow said it had 3.9 billion pounds of liquidity, giving it sufficient resources to keep going with low levels of traffic until 2023, despite the 2 billion loss before tax for 2020.

The airport urged the government to provide business tax breaks for big airports, something only available to smaller airports so far, and to extend the furlough job support scheme to help it financially before the recovery takes off.

($1 = 0.7044 pounds)

(Reporting by Sarah Young. Editing by James Davey and Mark Potter)

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Britain’s Heathrow sinks to $2.8 billion loss during pandemic

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Britain's Heathrow sinks to $2.8 billion loss during pandemic 3

LONDON (Reuters) – Britain’s Heathrow Airport plunged to a 2 billion pound ($2.8 billion) annual loss after passenger numbers collapsed to levels last seen in the 1970s during the pandemic.

Heathrow called on the government to agree a common international travel standard to allow passengers to start flying again in the summer and to provide business tax breaks for airports to help them ride out the crisis.

The airport, west of London, is hopeful that travel markets will reopen from mid-May after a government announcement on easing lockdown on Monday.

Still Britain’s biggest airport, Heathrow last year lost its title as the busiest in Europe to Paris as its flight schedules contracted more than its rival’s.

The airport said on Wednesday that during 2020 passenger numbers shrunk 73% to 22 million people, with half of those people having travelled during January and February before COVID-19 shut down global travel.

The airport sunk to a 2 billion loss before tax on revenues which were down 62% to 1.18 billion pounds, but Heathrow said it had 3.9 billion pounds of liquidity and that could keep it going until 2023.

The airport is owned by Spain’s Ferrovial, the Qatar Investment Authority and China Investment Corp, among others.

($1 = 0.7044 pounds)

(Reporting by Sarah Young; Editing by Kate Holton and James Davey)

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