China’s shadow banking loans leap

January 16, 2014 Leave a comment

January 15, 2014 5:55 am

China’s shadow banking loans leap

By Tom Mitchell in Beijing

The rise of China’s shadow banking sector has been thrown into sharp relief by data from the central bank showing that it now accounts for nearly one third of aggregate financing in the world’s second biggest economy.Funds from trust companies and other entities in the shadow sector rose to their highest level on record and accounted for more than 30 per cent of aggregate financing, the People’s Bank of China said, up from 23 per cent theprevious year.

China’s shadow banking sector has helped fuel an alarming run-up in the debt owed by local governments, which have established off balance sheet vehicles to borrow money for development projects. A recent report by China’s National Audit Office estimated that local government debts had reached almost $3tn by June last year, rising 70 per cent from the previous audit conducted at the end of 2010.

Central bank concerns led it to withdraw liquidity from the interbank market on two occasions in 2013, prompting sharp spikes in the cost of short-term financing. However, Sheng Songcheng, head of statistics at the PBoC, noted that M2 money supply still rose 13.6 per cent for the full year, ahead of the PBoC’s target of 13 per cent.

He added that the central bank would “neither loosen or tighten money supply” in the coming year. China’s premier, Li Keqiang, recently said that the government would guarantee “adequate” liquidity for 2014.

The PBoC also reported on Wednesday that China’s foreign reserves, the world’s largest, rose to a record $3.82tn at the end of December. Last week China officially became the world’s biggest trader of goods, pipping the US in that category for the first time.

Filed under Macro Trends

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