China’s shadow banking system a threatening US$4.3tn
May 15, 2014 Leave a comment
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
