China’s shadow banking poses risks as unregulated loans fuel bubbles, says CLSA
Brokerage estimates that shadow financing reached 54 trillion yuan in China at the end of last year, 79 per cent of GDP
China’s fast-growing shadow banking system may cause economic shocks, as unregulated financing from the sector is fuelling industrial overcapacity and an inflated property market, said a senior analyst at Hong Kong brokerage CLSA.
Francis Cheung , head of China and Hong Kong strategy at CLSA, said: “Our estimate is if China cleans out the bad debt in this sector in one go, there is a potential loss of 3.7 per cent of GDP.”
However, he does not think it poses a big systemic risk, given the size of China’s balance sheet.
The biggest risk in the shadow banking industry lies in its “lack of visibility” and that could bring shocks to the economy further down the line, Cheung told reporters today at the annual CLSA Investors’ Forum.
CLSA estimates that shadow financing had reached 54 trillion yuan in China at the end of last year, 79 per cent of GDP, and that 64 per cent of such assets originated from or were related to banks, according to a report it issued on Tuesday.
If China cleans out the bad debt in this sector in one go, there is a potential loss of 3.7 per cent of GDP
The valuation is close to the 78 per cent of GDP estimated by Moody’s, but higher than some international institutions’ estimates. “China’s shadow-banking activity is opaque and bypasses the central bank’s disclosure of total social financing,” the report said, suggesting the size of the industry is often understated.