China will encourage cross-border capital flows at a more open level, while also being careful not to cause huge fluctuations in the domestic financial market, the country's top banking and insurance regulator said on March 2.

The volume of foreign capital inflows will increase noticeably, as China's asset prices are attractive to investors and its economy is closely linked to other economies due to a high level of globalization, said Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission.

The size and speed of foreign capital inflows are under control, Guo said at a news conference held by the State Council Information Office.

He stressed that the force and impact of proactive fiscal policies and ultraloose monetary policies, which were adopted by many other countries, should be taken into more consideration, as these policy measures, though necessary for stabilizing the economy, also have side effects, which have gradually started to show.

"The financial markets of developed countries in Europe and the Americas have been running high, which is against the ongoing trends in the real economy. If the difference is too huge between financial markets and the real economy, problems will occur, and the financial markets will be forced to make adjustments. So we are worried about financial markets, especially the problem that one day foreign financial asset bubbles may burst," he said.

"We continue studying how to take more effective measures to encourage cross-border capital flows at an increasingly more open level on the one hand, while not causing huge fluctuations in the domestic financial market on the other hand. We have confidence in doing the work well."

The efforts to reduce financial market volatility are in accordance with China's battle against financial risks.

In the first year of the country's 14th Five-Year Plan (2021-25), the China Banking and Insurance Regulatory Commission will take risk prevention and control as "an eternal theme of the financial sector" and will relentlessly monitor and tackle various types of financial risks, Guo said.

"The regulator will also maintain a market environment of fair competition, strengthen antimonopoly efforts, prevent the disorderly expansion of capital and ensure financial innovation is conducted under prudential regulation," he added.

Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co, said financial reform and innovation must obey and serve the eternal theme of financial work, which is preventing and controlling financial risks.

"New technologies and new methods should be adopted to identify and control risks more precisely," Dong said.

In recent years, China has reduced the high leverage ratios of its banking and insurance sectors.

From 2017 to 2020, the average annual growth of total assets was 8.3 percent for the banking sector and 11.4 percent for the insurance sector — roughly half of the numbers from 2009 to 2016.

Interbank assets idling within the financial system are now taking a significantly smaller part of total assets of the banking and insurance sectors, according to the China Banking and Insurance Regulatory Commission.

In addition, the banking sector disposed of 8.8 trillion yuan ($1.36 trillion) of nonperforming loans from 2017 to 2020, exceeding the total volume during the 12 years before 2017.

The country also worked to dismantle shadow banking in an orderly manner, cutting its size by about 20 trillion yuan from the historical peak, Guo said. The broad measure of shadow banking is defined by the Financial Stability Board as credit intermediation involving entities and activities outside the regular banking system.

Gu Shu, chairman of Agricultural Bank of China, said the large State-owned commercial lender continuously ramped up efforts to dispose of nonperforming loans in recent years.

Last year, the Chinese banking sector disposed of 3.02 trillion yuan of nonperforming assets. The volume of disposal of nonperforming loans also remained at a fairly high level for Agricultural Bank of China, enabling the bank to maintain stable credit asset quality, Gu said.

In 2020, China deferred principal and interest payments on 6.6 trillion yuan on loans to a number of micro, small and medium-sized enterprises and export-oriented companies. That policy will come to an end on March 31. Agricultural Bank of China has been closely monitoring the asset quality of these loans, of which the risks still remain controllable, although their nonperforming ratios are higher than those of typical types of loans, he said.