Shadow Banking
When I say shadow banking, do you think of money market and bond funds? I can’t blame you if that’s not quite where your mind goes first.
With its GDP growth slowing to 7.4% in the first quarter this year, will China continue to be the world’s growth engine? Will the cooling real estate markets in some Chinese cities pose a threat to the shadow banking industry and the overall financial system?
No doubt shadow banking in China is large (30% of total banking assets, according to JPMorgan’s estimates) and carries unknown risks. But China’s problem is not shadow banking itself, it is a dysfunctional credit system.
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Joe Zhang, chairman of Wansui Micro Credit, says there is no problem with shadow banking in China; microcredit actually provides an invaluable service to small businesses. The key policy issue is how to make solid progress in liberalizing interest rates and ending financial repression.
In the second installment in our series of interviews with experts on China, Fraser Howie explains why he thinks recent actions by the PCOB will fall far short of resolving the country's banking problems.
Recent attempts by the People’s Bank of China to limit shadow banking have sent commercial lending rates soaring and Chinese stocks into bear market territory. In this first installment in a series of interviews featuring China experts, we ask Michael Pettis for his analysis on recent events.