China Shadow Bank­ing is Ex­plod­ing

The Economic Times - - Finance & Commodities -

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.

Busi­ness In­sider

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.

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