Date
20 October 2017
China's shadow banking system is not as big as commonly believed, according to a new report co-authored by Andrew Sheng. Photo: HKEJ
China's shadow banking system is not as big as commonly believed, according to a new report co-authored by Andrew Sheng. Photo: HKEJ

China shadow banking risk exaggerated: study

China’s Shadow banking issue has been exaggerated, a study says, dismissing warnings by some observers that the problem in the mainland could precipitate a new financial crisis globally.

According to the study, which was undertaken by some think-tanks and experts including Andrew Sheng, China’s shadow banking market amounted to 31 trillion yuan as of the end of 2013, way below the street estimates that had ranged from 40 trillion to 60 trillion yuan, the Hong Kong Economic Journal reported Wednesday.

Andrew Sheng is a former deputy chief executive of the Hong Kong Monetary Authority and the current chief adviser to China Banking Regulatory Commission.

The study blames double- or triple-counting for exaggerated market figures.

The shadow banking risk is controllable and there is a low chance of a large-scale credit crisis, it says. 

Sheng, who leads the Hong Kong-based international think tank Fung Global Institute, jointly authored the report with three other experts including Christian Edelmann, the Asia pacific head of global management consulting firm Oliver Wyman. 

The group’s conclusion followed an investigation into the usage of funds generated from shadow banking activities, Edelmann told HKEJ. 

A majority of such usages are single purpose and flow to one direction only. Shadow banking activities will not endanger the stability of the commercial banking system, but they will boost lending efficiency to retailers and small and medium-sized enterprises, the expert says.

Even in the event that non-performing loan ratio in the shadow banking system rises to 10 percent, or 24 percent in a dreadful scenario, roughly 22 to 44 percent of such problem lending could be funneled to the commercial banking system, causing the non-performing ratio in the traditional system to increase to 1.8 or 4.3 percent, Edelmann said.

Translation by Vey Wong

– Contact us at [email protected]

VW/JP/RC

EJI Weekly Newsletter

Please click here to unsubscribe