China Shadow Banking is Exploding
MAKING EXCEPTIONS A market in which “they all think the government will save everything” is generally not one you want to own — but China has been an exception.
China is unstoppable. GDP growth has slowed down to 6.9%, according to official numbers. The numbers are likely inflated, but the boom is still underway.
Reasonable estimates from knowledgeable observers still have China growing at 4–5%, which is rather remarkable given China’s size.
However, the problem lies in the debt that is fueling the growth.
Ambrose Evans-Pritchard reported some shocking numbers in his July 17 Telegraph column.
A report from the People’s Bank of China showed off-balance-sheet lend- ing far higher than previously thought and accelerating quickly. (Interestingly, the Chinese have made all of this quite public. And President Xi has taken control of publicising it.)
The huge increase last year probably reflects efforts to jump-start growth following the 2015 downturn. Banks poured fuel on the fire because letting it go out would have been even worse. But they can’t stoke that blaze forever.
President Xi Jinping has been trying to dial back credit growth in the stateowned banks for some time, but in the shadow banks that Xi doesn’t control, credit is growing at an astoundingly high rate, far offsetting any minor cutbacks that Xi has made.
A market in which “they all think the government will save everything” is generally not one you want to own—but China has been an exception. It won’t remain one forever. The collapse, when it comes, could be earthshaking.