China’s shadow banking system a threatening US$4.3tn

China’s shadow banking system a threatening US$4.3tn

Staff Reporter

2014-05-11

The size of China’s shadow banking system is around 27 trillion yuan (US$4.3 trillion), only around one fifth of the banking sector’s assets, said a Chinese official. The low proportion does not mean the system’s risks should be underestimated; the underground sector still has the power to drag down the traditional banking sector and the real economy, reports our Chinese-language sister newspaper Want Daily.

A report published by the Chinese Academy of Social Sciences on Friday said shadow banking loosely has a scale of 27 trillion yuan (US$4.3 trillion) and amounted to 19% of the banking sector’s total assets. The most conservative estimate reads six trillion yuan (US$963 billion) if only including non-traditional and unmonitored loans and financings, said Hu Bin, vice director of the academy’s Institute of Finance and Banking.

The system was previously estimated at around 33 trillion yuan (US$5.2 trillion) and amounted to 23% of the 143 trillion yuan (US$22 trillion) in assets of China’s legal banking sector at the end of September last year. However, Hu claims the figure was overestimated since part the fund transfers were conducted within legitimate banking channels.

People should be concerned over the quality of the system instead of the quantity, Hu said. The system’s rapid growth has made it increasingly intertwined with China’s financial systems. It could pose higher risks to the banking sector and the real economy through currency and credit markets and trigger a systematic financial crisis.

The part of the traditional banking sector that spins off into the non-traditional credit system will be a key area for the monitoring efforts of the Chinese government in the future, said the report. It called for the standardization of interbank transactions, higher transparency and integration into a unified loan system. Statistics and auditing systems should be improved after taking capital stock into consideration and fund sets aside in preparation for potential risks.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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