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The Rise of China’s Shadow Banking System

It is hard to believe that just almost a decade ago, almost all types of lending made in China was done by conventional banks. Now, as Satyajit Das rightly puts, China’s burgeoning Shadow Banking system has exacerbated the worsening debt situation of China, where debt is 210% of China’s GDP as of 2013.

Easy credit has certainly helped to fuel China’s economy, and despite capital regulations imposed on banks earlier this year, all the regulations have done is to tip lending into the shadow banking system’s favour, where trusts and wealth management products (WMPs) can promise returns as high as 12%. While many analysts believe that the increasing debt would not translate into a harsh landing for China, the risk of the pricking of a property bubble in a nation where many properties serve as collaterals as loans and other forms of debts, would result in an alarming slowdown in China’s economy.

It looks like investors of China’s promise should look to increase their level of caution when it comes to investing in Chinese firms and always always, check on the management, any red flags in the annual report before pouring their money in.

Read the original article of how Shadow Banking has evolved at http://forbesindia.com/printcontent/38108

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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