Shadow banking makes a surprise return to China
Borrowers are turning to risky deals because they cannot obtain financing through credit channels, analysts say
A surprisingly rebound of shadow banking credit was recorded in the mainland in the first quarter of this year, despite efforts by the central bank to curb off-balance activities.
It reflected the difficulty for the People’s Bank of China to strike a balance between two sometimes conflicting policy goals –tightening monetary policy to control financial risk while ensuring a sufficient supply of credit to keep growth on track.
A rise in shadow banking activities is a sign that many borrowers are turning to murky and risky deals because they cannot obtain financing through regular bank loans or bonds, analysts said. This could undermine Beijing’s efforts to root out financial risks later this year when a key communist power reshuffle takes place.
The size of China’s aggregate financing, which measures overall financing support to economic activities via various form of credit, was up 3.4 per cent from a year earlier to 6.93 trillion yuan (US$1 trillion) in the first three months of this year, according to data released by the central bank on Friday.
Broken down, off-balance sheet bank credit saw rapid growth in the first quarter. Trust loans grew by nearly four times to 734.9 billion yuan, entrusted loans – organised by agents between borrowers and lenders – advanced by 15.7 per cent to 634.7 billion yuan, while bankers acceptances (short-term credit investments created by a non-financial firm and guaranteed by a bank to make payment) surged by 900.5 billion yuan compared with last year.