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Sancho Panza

Chinese Think Tank Puts Shadow Banking At 40% Of Gdp

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WSJ China 9/10/13

'As the fastest-growing part of China’s financial sector, shadow banking is no longer the sideshow it was five years ago.

The sector grew from almost nothing a few years ago to the equivalent of 40% of gross domestic product at the end of 2012, the Chinese Academy of Social Sciences said in a report published Tuesday.

The undisciplined grey lending source that exists alongside the traditional banking system has become vital to sustaining growth in the world’s second-largest economy, although some might argue it is more effective in keeping alive factories in industries with overcapacity and a property bubble.

Despite a consensus on its fast-growing nature and increasing importance to the economy, there are disagreements over the exact size of China’s shadow-banking sector, given different calculation standards and lack of a unified definition.

The government think tank report put the size of the sector—which covered all shadow-lending activities from most well-known wealth-management products and trusts to interbank business, finance leasing and private lending—at 20.5 trillion yuan ($3.35 trillion) as of the end of 2012.

But the calculation is conservative compared with those done by international research houses. Fitch Ratings estimated earlier this year that China’s total credit including various forms of shadow-banking lending may have reached 198% of the country’s GDP, while J.P. Morgan estimates have put it at as much as 69% of GDP, or 36 trillion yuan.

The differences in calculations are partly due to the opaque nature of shadow banking and a lack of regulation compared with the traditional banking system.

Based on available data from regulators, the academy’s report said shadow-banking activities involving wealth-management products and trusts stood at 14.6 trillion yuan by the end of last year, equivalent to 29% of the country’s GDP.

While its exact size is unknown, the rapid growth of shadow banking has triggered concerns over potential risks that threaten financial stability due to its close link to the traditional banking sector.

A high-profile default of a wealth-management product sold through Huaxia Bank Co. late last year brought the potential risks associated with shadow financing to the fore for the first time. Regulators were prompted to tighten supervisions over wealth-management products, a high-yield alternative for bank deposits, after the default.

But that didn’t curb the expansion of shadow-banking activities, which have been a lifeblood for property developers and local government-financing vehicles cut off from bank credit.

The surge in shadow financing also promoted the People’s Bank of China to step aside this June, refusing to inject liquidity during an interbank credit crunch in a bid to rein in reckless lending.

CASS said the liquidity risks caused by the mismatch of shadow financing with short-term capital to fund long-term projects would become even more prominent with an expansion of shadow banking activities.

The growth of shadow financing could also make regulators’ credit-control measures less effective and may pose systematic risks to the economy, the think tank warned.'

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Without Chinese Pai Gow gamblers even the limited growth we've seen since 2008 wouldn't have materialised. Too bad they're as bankrupt as we are now. :lol:

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It's really strange how the US and China have ended up in exactly the same place- both are crony capitalist regimes, one posing as a free market democracy and other posing as a communist state.

Those who fear a war between them might be wrong- we might instead get some grotesque form of mating resulting in a truly global crony capitalist oligarchy.

The truth is that the ruling elites of both nations have far more interests in common with each other than with their own populations.

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