shadow banking

By Paul Hodges of International eChem

Strange things are happening in China’s polyethylene (PE) market. Despite a slowdown in the economy, demand is surging.

Our research suggests that PE, like copper and iron before it, is the latest instrument of China’s ‘collateral trade’, in which spurious imports are helping to drive one of the world’s great credit bubbles.

It can only end badly. Read more

China’s traditional banking sector is leading a counter-attack against the runaway success of online funds launched by internet companies such as Alibaba.

The China Banking Association, with 362 member banks, says deposits made in the funds should not be regulated in the same way as deposits by financial institutions, as at present, but as regular deposits, Chinese media have reportedRead more

By Jason Bedford, independent consultant

Many of the risks surrounding China’s trust sector have been misunderstood and consequently overstated. The Rmb3bn ($495m) China Credit Trust (CCT) product that was rescued at the 11th hour late last month was far from typical of trust products in general – and neither was its potential default new news; it first defaulted in 2012.

Some market watchers saw the CCT scare as a “Lehman Brothers moment” for China that was narrowly averted, but could strike again in a different guise. They may be disappointed. Those trying to understand the risks from China’s shadow financing need to put the trust sector into a more sober context. Read more

The People’s Bank of China on Monday finally went public over the country’s liquidity squeeze.

Its first statement on the cash crunch helped ease the pressures in the money markets and bring down short-term borrowing costs. But it did nothing to reassure investors in the stock market, where the Shanghai Composite plunged 5.3 per cent, taking its losses over the last two weeks to more than 12 per cent.

That seems logical – the authorities don’t want a banking crisis. But they appear to be serious about putting the brakes on credit growth, even at the cost of slowing the economy. Read more

Two of the chief concerns about the Chinese economy are shadow banking and rising property prices. Wang Tao, chief China economist at UBS, talks to John Authers about how the government is trying to cool prices and address fears of a credit crisis.

China is to rein in its fast-growing shadow banking system by requiring banks to provide extensive disclosures about the off-balance sheet investment products that they sell to customers, according to people briefed on the new rules.

The Chinese shadow banking system – credit flows beyond traditional bank loans – has increased fourfold in size since 2008 to about Rmb20tn ($3.2tn), or 40 per cent of gross domestic product. These flows were crucial in reviving the country’s growth last year, but banking analysts and rating agencies have warned that they pose an increasingly serious risk to Chinese economic stability.

 Read more

By Ben Simpfendorfer of Silk Road Associates

The Chinese coastal city of Wenzhou is notoriously clannish – especially so since the collapse of the city’s shadow banks. Once a symbol of its boisterous private sector, the number of shadow banks has fallen from a peak of 450 in 2007 to less than 50 today. Read more

Has a mainland-China-style credit crunch hit Hong Kong?

There is certainly a lot less liquidity sloshing about the place, thanks to a combination of Basel III capital requirements and more Hong Kong dollar deposits being converted into renminbi – a currency widely expected to appreciate against both the US dollar and the Hong Kong dollar, which is pegged to the greenback. Read more

By Victor Shih of Northwestern University

In July this year, households and companies withdrew a total of Rmb1,100bn ($172.5bn) from China’s banks, equivalent to 2.5 per cent of GDP. In August, household deposits barely clinged to positive territory at Rmb26bn, despite receiving over Rmb188bn in new loans that month.

Corporate deposits grew a bit more, but were still abnormally low. Although the September numbers are not out yet, Chinese press reports suggest that the deposits in the major state banks declined substantially in the first half of the month. Where did all the money go? Read more