Across The Border | Risks to China’s financial system may continue to grow despite tighter regulations
Tightening aimed at reducing leverage in financial sector, especially assets funded by wealth management products – but this may lead to unintended consequences of higher risk in other shadow-banking activities
China’s regulatory tightening is aimed at reducing leverage in the financial sector, especially in assets funded by wealth management products.
But this may lead to unintended consequences of higher risks in other shadow-banking activities amid a shift in composition of the banking sector, analysts say.
The People’s Bank of China raised short-term policy rates twice this year and implemented a tougher macro-prudential assessment system for financial institutions.
The China Banking Regulatory Commission is also stepping efforts in curbing risks of wealth management products and trusts, borrower guarantee chains, and online lending.
At least 17 financial institutions faced fines and were warned for indulging in irregular arbitrage, illegal transactions and improper fees as a result. The head of China Insurance Regulatory Commission was also arrested in the latest wave of anti-corruption campaign.
The expansion of China’s shadow banking activity – where lending is not provided nor regulated under the formal banking sector – continues to be propelled by assets funded by wealth management products, which now accounts for 47 per cent of the sector’s revenue.