CHINA will fend off risks from excessive optimism that could lead to a “Minsky Moment,” central bank governor Zhou Xiaochuan said Thursday, adding that corporate debt levels are relatively high and household debt is rising too quickly.

A “Minsky Moment” is a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures. The theory is named after economist Hyman Minsky.

Zhou’s warnings of potential risks facing the world’s second-largest economy contrast with the rosier views of most Chinese officials.

“We should focus on preventing a dramatic adjustment,” he said.

China will control risks from sudden adjustments to asset bubbles and will seriously deal with disguised debt of local government financing vehicles, Zhou said.

Still, China’s overall debt levels could decline as long as authorities keep a tight control on credit, he said.

Zhou also said that the trading range of the yuan exchange rate was not a key issue at the moment, and that the width of the yuan’s current band rarely constrains supply and demand.

“Sometimes a widening of the exchange rate’s floating range is a signal that [China’s] opening up will move forward. But this is not the key focus currently,” he said.

The central bank could widen the yuan trading range to allow it to rise or fall 3 percent against the U.S. dollar from the daily mid-point rate set by the central bank, up from the current 2 percent, according to the sources.

The foreign exchange market is currently stable, said Pan Gongsheng, chief of the forex regulator, adding that supply and demand in the foreign exchange market was basically balanced.

(SD-Agencies)