Shadow Banking System in China Deleverages

Published By : 11 Sep 2014 | Published By : QYRESEARCH

The shadow banking system in China is evidently witnessing a rapid de-leveraging activity. Such a disorderly and rapid reduction will hamper the country’s banking segment. Thus, it becomes important for China to develop a well-regulated financing channel of investment to meet the funding needs in the shadow banking system, reports Australia and New Zealand Banking Group Limited (ANZ). 

According to the statistics of ANZ report, the off-balance-sheet financing share has come to a total aggregate of approximately 20% today. Since the beginning of this year, this value has declined from close to 40% and has been on the lowest level since the fourth quarter 2012. 

ANZ estimates that by mid-2014 China’s shadow banking was capable of reaching around RMB33 trillion (US$5.38 trillion), a figure equivalent to 20% of China’s total bank assets or 58% of 2013 GDP.

The shadow banking segment is a threat to China’s financial stability in terms of regulatory challenges and financial risks. Deleverage is a result to manage the financial system risks in an efficient manner. However, the risks will remain and rise exponentially albeit the disorderly deleveraging. 

As financing options dry up in the shadow banking sector, the need for new financing channels in order to meet the funding demand rises. China’s constant effort in developing such a well-regulated financing channel is remarkable. 

The most effective way to alleviate the state of disorder and high-risks of de-leverage in China is to construct more sophisticated and diversified funding structure in the stock market, including credit and bond markets, and other capital markets.
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