Author Topic: Shadow banking warning highlights China’s ‘debt time bomb’  (Read 1682 times)


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Shadow banking warning highlights China’s ‘debt time bomb’
Financial Stability Board reveals that US$7 trillion of the world’s riskier non-bank loans are held in China forcing Beijing to act
By GORDON WATTS APRIL 3, 2018 2:35 PM (UTC+8) 75 1

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“China’s total debt has almost doubled between 2008 and mid-2017, to 256% of GDP [gross domestic product] as the economy slowed down from double-digit growth to a mere 6%,” he added in an article for The Conversation.

Part of the problem resides in the shadow banking sector, a report released last month by the Financial Stability Board, an international organization which monitors the financial system, pointed out.

‘Systemic risk‘
Based in the Swiss city of Basel, the FSB found that about 15%, or roughly US$7 trillion, of the world’s riskier non-bank loans were held in China. Linked to the supply of credit, these loans could pose ‘systemic risk’, the survey highlighted.

Since the 2008 financial crisis, regulators have tightened oversight of the sector after borrowing outside the traditional banking system allowed excessive risk-taking to build up, threatening the stability of the global economy.

“Market-based finance provides increasingly critical alternatives to bank lending in the financing of economic growth, and it is vital that resilience of the sector is maintained as it continues to evolve,” Mark Carney, the chairman of the FSB and the governor of the Bank of England, said in a statement.

Yet before the ink had barely dried on this latest report, alarm bells had already started ringing in Beijing. Back in February, the Anbang Insurance Group was taken over by the government in an unprecedented move by China amid fears it was on the verge of collapse.

During the previous three years, the company had gone on a whirlwind, worldwide spending spree after gorging on cheap credit.

In 2015, the Beijing-based behemoth bought the iconic Waldorf Astoria in New York for nearly $2 billion and later made a $6.5 billion move for Strategic Hotels and Resorts.

With 1.97 trillion yuan ($310.85 billion) in assets, the company was ranked 139 in the 2017 Global 500 list, compiled by Fortune magazine.

“The decision had huge significance,” Hu Xingdou, an economist at the Beijing Institute of Technology, said at the time. “If something went wrong with Anbang it would lead to massive bad loans in the financial system.”

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