Checking shadow finance

China to launch regional monitoring of financing flows

SHANGHAI: China will begin publishing a regional breakdown of economy-wide financing flows, a central bank official said, in an apparent effort to strengthen regulation of shadow financing.

The People’s Bank of China (PBoC) would start publishing regional data on total social financing (TSF), a recently developed indicator designed to measure overall corporate fundraising, a deputy PBoC governor Pan Gongshend was reported as saying in remarks published yesterday.

PBoC launched TSF in 2011 as a broad measure of fundraising by non-financial entities, given the increasing importance of non-bank sources of finance.

The addition of the regional breakdown appears to be an attempt to track trends in non-bank finance in greater detail. TSF includes several items commonly viewed as “shadow banking”, including trust loans, company-to-company loans and bankers’ acceptances.

For most of the last decade, authorities used data on net new yuan bank loans to gauge the impact of monetary policy. But TSF – which also includes corporate bonds, foreign currency loans and equity fundraising – has now largely supplanted bank loans as the key indicator of liquidity conditions.

“Starting 2013, the central bank will not only publish national TSF, but also regional TSF,” Pan was quoted by the official China Securities Journal as saying.

TSF hit an all-time high of 15.76 trillion yuan (US$2.5 trillion) in 2012 and is set to reach another record high in 2013.

Analysts have raised concerns in recent years that the growth of lightly regulated shadow banking channels is creating hidden risks in China’s financial system.

Trust loans have grown rapidly and are often packaged into wealth management products sold to yieldhungry retail investors in what amounts to de facto asset securitisation.

Bankers’ acceptances – a form of off-balance-sheet credit that companies can use as payment – have also become a means for banks to evade loan quotas.

Corporate bonds are not generally viewed as part of shadow banking but have also exploded in recent years. But some analysts believe that even TSF fails to capture all forms of shadow finance.

“The creation of the TSF represents an important step forward by the Chinese authorities in broadening their conceptualisation of financing beyond lending,” wrote Charlene Chu, head China banks analyst at Fitch Ratings, shortly after the measure was launched in 2011.

“However, a number of important items remain excluded, making the TSF too narrow to be used as a solid gauge of total formal and shadow credit,” she added.

Since then Fitch has regularly published “Adjusted TSF” figures that attempt to fill in perceived gaps. Chu’s figures also include letters of credit and some trust loans not captured in TSF. —