Liu Shangxi, head of the Chinese Academy of Fiscal Sciences, has said that governments must make clear what financial risks are necessary, and what are optional - otherwise there is a risk of new and greater financial risks.
Liu was speaking at the 22nd China Capital Market Forum on January 13, jointly held by the Institute of Finance and Securities and the Chongyang Institute for Financial Studies, both at the Renmin University of China, and Huarong Securities.
Governments should not take on optional risks, Liu said; instead, financial institutions and the market are supposed to shoulder some financial risks.
If a government becomes accustomed to taking responsibility for both individual risks and public risks, it will be be counterproductive. This is because only public risks are the duty of government, and other financial risks should be handed to financial institutions.
He further suggested that a government's primary task is observation, rather than taking action. This means that fiscal authorities would only need to be vigilant to what risks from financial agencies could be, judge whether these micro risks could trigger systemic risks or other public risks, and prevent a domino effect generated by micro risks.
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