Date
23 July 2017
The People's Bank of China plans to set standards for identifying hidden risks and publish the findings. Photo: Xnhua
The People's Bank of China plans to set standards for identifying hidden risks and publish the findings. Photo: Xnhua

PBOC tightens screws on US$8 tln shadow loan market

China’s central bank is tightening risk controls in the burgeoning market for loosely regulated shadow lending.

The People’s Bank of China (PBoC) has begun the process by cracking down on online financing, in which firms make loans for everything from weddings to mining projects, Bloomberg reports.

It’s a growing part of a shadow banking market that ballooned 30 percent last year to 53 trillion yuan (US$8.1 trillion), or four-fifths the size of the economy, Moody’s Investors Service data show.

The PBOC also wants to make trading in some commercial loans transparent by building an exchange for transactions, according to local media reports.

The PBOC has switched gears from stimulating growth in an easing cycle that started late 2014 to clamping down on the financial and debt risks that threaten to derail a tenuous stabilization in the world’s second-largest economy.

The monetary authority is taking on an expanded role among watchdogs as top leaders plan an overhaul of the nation’s regulatory structure.

“The central bank feels the urgency to improve oversight,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai.

“Online financing remains in the shadows, but an increasing number of the public who are more vulnerable to defaults than institutional investors are joining for the sake of high returns.”

More than 90 percent of China’s almost 4,000 lending platforms promised their 2.9 million investors annual returns ranging from 8 percent to 24 percent in March, according to Yingcan Group, which tracks the data.

The central bank plans to set standards for identifying hidden risks and publish the findings, Sheng Songcheng, head of the PBOC’s statistics department, wrote last week in China Finance, a magazine it publishes.

He said monitoring began in early May, with an emphasis on tracking how loans are used, but the PBOC still needs to work out legal issues with the National Bureau of Statistics to legally collect some data.

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