IMF Completes 2024 China Financial Stability Review
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the 2024 Financial System Stability Assessment [1] (FSSA) with The People’s Republic of China.
The FSSA found that since the last FSAP in 2017, the authorities have made notable progress in strengthening financial supervision and regulation, continuously implementing international regulatory standards, and enhancing systemic risk monitoring. Due to regulatory reforms, they also made important reductions in risks arising from non-bank financial institutions.
While bank capital and liquidity levels appear adequate overall, the FSAP concluded that financial stability risks are elevated. Rising vulnerabilities from the property sector downturn and widening strains in highly leveraged local government financial vehicles (LGFV) warrant attention as declining economic growth could affect credit portfolio quality and accommodative monetary policy is weakening banks’ organic profitability, with smaller banks—particularly those with riskier business models—being more vulnerable.
The relatively larger capital and liquidity buffers of the largest banks and the availability of fiscal buffers for targeted interventions have thus far helped contain risks, but further steps remain necessary to strengthen the financial stability framework and pursue a more comprehensive solution to address the LGFV debt overhang. The authorities have enacted a number of measures to address the property downturn and LGFV financial stress, many of which were introduced after the FSAP took place, aimed at containing the impact of these risks.
Continued enhancement of regulation and supervision will ensure regulatory frameworks remain commensurate with the scale and complexity of the financial system—which will require additional resources and a further strengthening of analytical capacity. While the authorities have taken steps to address banking system weaknesses, the current crisis management framework does not adequately support the full range of options needed to manage systemic distress. Efforts to further strengthening the draft Financial Stability Law, designate an independent and properly resourced lead resolution authority, build greater crisis management capabilities and introduce an effective emergency liquidity assistance framework remain a priority.
Executive Board Assessment [2]
Executive Directors broadly agreed with the analysis and recommendations of the Financial System Stability Assessment (FSSA) for China. They commended the authorities’ significant progress since the 2017 FSAP, particularly to strengthen financial sector oversight and regulation, operationalize the macroprudential framework, and rein in risks in the nonbank financial intermediary sector. While noting the financial system’s resilience to recent shocks, Directors encouraged the authorities to continue implementing the FSSA recommendations, particularly to further strengthen risk-based supervision, financial regulation, and systemic risk monitoring.
Directors were broadly reassured by the stress test findings that the banking system would remain resilient in an adverse scenario. At the same time, they stressed the need to strengthen data quality, granularity, collection, and accessibility to further enhance systemic risk assessment. Directors recommended close monitoring of mid-size and smaller banks, as they would be more vulnerable to shocks, and additional scrutiny from supervisors of some bank business models. They also underscored the need to further address risks from the ongoing property sector adjustment and local government financing vehicles, and positively assessed the various measures recently taken by the authorities in this respect.
Directors called for continued efforts to further strengthen risk-based supervision, boost supervisory resources and independence, cultivate specialist skills, and enhance inter-agency cooperation. They encouraged the authorities to continue enhancing their capacity to monitor the build-up of financial sector and systemic vulnerabilities and to strengthen crisis management and resolution frameworks in line with international best practices.
Directors commended the authorities for being at the forefront of green finance and encouraged them to continue bolstering their capacity to analyze climate risks. They also welcomed the advances on financial inclusion and looked forward to further progress in this area.
[1] The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector. FSAPs provide input for Article IV consultations and thus enhance Fund surveillance. FSAPs are mandatory for the 47 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member economies. The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA).
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
https://www.imf.org/en/News/Articles/2025/04/04/pr25090-china-imf-executive-board-concludes-2024-financial-system-stability-assessment