The Rise of China’s Shadow Banking System
July 3, 2014 Leave a comment
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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