China to implement new policies to slow shadow banking

BEIJING - Chinese government plans to implement new measures to slow the pace of shadow bank lending appear to strike a balance between curbing the growth of shadow banking while preventing a credit crunch that could undermine GDP growth, according to BBVA Bank researchers.

BBVA says the Chinese shadow banking system has continued to boom despite official efforts to clamp down by requiring banks to bring off-balance-sheet lending back onto their books. “While having a beneficial effect in supporting GDP growth, the rapid growth of shadow bank lending has led to over-indebtedness and rising liquidity risks, as evidenced by renewed stress in the interbank market in recent weeks,” BBVA says.
“We estimate outstanding shadow bank credit of RMB36 trillion (US$6 trillion or 70% of GDP) as of end-2013, accounting for around 1/3 of total credit (including bank loans). The latest measures by the State Council build on previous official efforts by seeking to create a more comprehensive regulatory framework for shadow banking activities and curbing the issuance of banks’ and trust companies’ wealth management products (which are the source of funding for much of the shadow banking system). www.bbvaresearch.com (ATI).