China data delay leaves FSB in the dark on riskiest shadow

HONG KONG: The Group of 20 (G20) economies’ financial risk monitoring agency has criticised Beijing for being slow in providing key financial data from China, leading to the delay in a report on the risks the world faces from shadow banking.

China failed to provide data to the Financial Stability Board (FSB) in time for its annual ‘Global Shadow Banking Monitoring Report’, the FSB said on Wednesday.

The People’s Bank of China and the China Banking Regulatory Commission (CBRC) were not immediately available for comment.

China’s top leadership has itself identified curtailing financial risks as a top priority this year after overall leverage in the economy rose sharply, but its tighter control of bank lending appears to be pushing borrowers back to alternative sources of funding, including the opaque, often loosely regulated shadow banking sector.

China’s US$7.7 trillion shadow banking sector, which includes non-bank forms of credit such as trusts and wealth management products, is dwarfed by that of the United States and Europe, but the speed at which it has expanded has become a concern to regulators at home and abroad worried about hidden systemic risk.

The FSB, which coordinates financial regulation for the G20, said a delay in receiving the Chi-

The late submission of Chinese data delayed the publication of this Report, and did not allow enough time to complete the assessment of entities in China as part of the shadow banking system. FSB

nese financial sector data meant it was unable to provide a measure of shadow banking activities in China that could pose a threat to stability.

The FSB launched the annual report in the wake of the 2007-2009 global financial crisis to monitor risks arising from non-bank financial activities and to shape regulatory policy.

“The late submission of Chinese data delayed the publication of this Report, and did not allow enough time to complete the assessment of entities in China as part of the shadow banking system,” the FSB said in the report.

“Chinese authorities have committed to making improvements to their internal processes related to this exercise, and are expected to contribute fully to the 2017 monitoring exercise.”

The FSB report shows China’s overall financial sector assets – including banks, insurers, central bank, and pension funds – grew 11 per cent during 2015 to reach US$ 89.9 trillion.

This included US$ 7.7 trillion in assets held by “other financial intermediaries”, a broad measure of shadow banking that includes institutions such as trusts, money market funds, hedge funds and money lenders.

China’s broad shadow banking sector ranked fourth globally after the euro area, the United States and United Kingdom, but in terms of growth was second only to Argentina’s, jumping 31 per cent year on year.

Because China submitted its data late, however, the FSB did not have time to perform an analysis of a narrower subset of shadow banking entities and activities to identify the key risks to stability, which is the focus of the report.

This includes identifying entities that increase system-wide leverage or carry liquidity risks, such as funds that may be vulnerable to runs, or lending based on shortterm funding.

The rebuke is an indication of the FSB’s frustration with China, said an analyst at a large international bank who asked not be named.

“I’d be annoyed too; it’s such a big market, and they haven’t provided the data,” said the analyst, adding that it was 2015 data the FSB asked for. — Reuters