'Grey rhino' risks in China's financial sector rising - central bank official

BEIJING (Reuters) - The "grey rhino" risks in China's financial sector are rising and regulators will step up efforts to control them, a senior official at the People's Bank of China said in remarks published on Monday.

Chinese policymakers have warned of potential "grey rhino" events - highly obvious yet ignored threats - as the nation faces increasing uncertainties as the economy slows amid a trade war with the United States.

Wang Jingwu, head of the central bank's financial stability department, expressed long-term concerns in an article in China Finance, a central bank publication.

"We need to pay high attention to the risk that the global economy will fall into a recession again in the medium- and long- term, and be alert to its gradual evolution that may trigger a new round of economic and financial crisis," he wrote.

China's financial markets "are highly sensitive to external shocks", and risks in local government hidden debt, bond defaults and property market could trigger financial risks, he said.

Risks of some Chinese financial holding groups and rural financial institutions may be exposed and risks of internet finance, especially online peer-to-peer (P2P) lenders, still need to be resolved, Wang said.

The stability of China's yuan exchange rate and foreign exchange reserve faces pressure, he said.

Wang also said the government will step up monitoring of stock, bond and foreign exchange markets to prevent contagion risks between different financial markets.

SHADOW BANKING SHRINKAGE

Beijing's policy focus has shifted to supporting growth from reining in debt risks - although top leaders remain worried about long-term systemic risks that could derail the country's economic ascent.

In a report released Monday, Moody's Investors Service said China's shadow banking sector shrank by 4.3 trillion yuan (484 billion pounds) in 2018 to end the year at 61.3 trillion yuan, its lowest level since just before Beijing's regulatory crackdown on the sector began at the end of 2016.

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The decline marks a victory for China's regulators, who embarked on a broad campaign several years ago to curb risky lending practices in the so-called shadow lending sector and contain a build-up in corporate indebtedness.

But the de-risking campaign has also cut off a source of credit for many small businesses. China has said it will control the pace and intensity of deleveraging efforts.

"While policy priorities are shifting towards sustaining growth and slowing deleveraging, we do not foresee a rapid rebound in shadow credit supply, because the authorities are also retaining their focus on financial system risks," said Michael Taylor, a Moody's managing director and chief credit officer for Asia Pacific.

(Reporting by Kevin Yao, Ryan Woo and Beijing Monitoring Desk; Editing by Richard Borsuk)