New | Banks resort to Beijing-backed shadow bailouts for market
Mainland lenders resort to shadow banking market so companies can buy their own shares - all under the auspices of the government
Deleveraging was the motto just a year ago for China's companies, banks and Beijing policymakers alike.
Now, as the stock markets wobble, the lenders are chanting a new slogan: "rescue leverage with leverage", or lend into the market to buoy already highly leveraged positions.
Along with brokerages and a US$42 billion-and-counting fund designed to prop up the stock market, China's banks are devising innovative but opaque methods to lend to companies so they can buy their own shares - all under the auspices of the government.
Banks cannot lend deposits directly into the equity market. Over the past several months they have rapidly ramped up exposure to margin lending, where brokerages lend to investors who use the funds to bet on stocks.
Banks had lent between 4.5 trillion yuan and 6.8 trillion yuan, or 5 per cent to 8 per cent of total bank loans, into the market as of July 9, Yuanta Securities estimated. That accounts for up to half of all margin finance and securities lending, as well as 500 billion yuan from highly leveraged "umbrella trusts" that has leaked into equities.
It is the leverage that banks have been enlisted to bailout with yet more leverage.