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Earlier this week Standard and Poor’s released a headline-grabbing report on global corporate borrowing. The report estimates that there will be $53 trillion in new corporate borrowing between now and 2017. Of that $53 trillion, Chinese corporations will account for a whopping $17.6 trillion, 33 percent of the total. When you dig into the details you [...]
Part of the problem with tracking the development of shadow banking in China is that there is no commonly accepted definition of what constitutes shadow banking. The closest thing we have to an official definition is from the Financial Stability Board (FSB), which was tasked by the G-20 to monitor and propose reforms to the [...]
Shadow banking is a topic that conjures up images of back alley dealings and hidden accounts. While this may be true for small segments of shadow banking systems, much of shadow banking is out in the open and easily recognizable. For ordinary investors, the most visible form of shadow banking is shadow deposits. Shadow deposits [...]
Michael Pettis’ new volume, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy, is an important new take on the ramifications of global imbalances, in particular for China and the United States. The book sketches the familiar outlines of Chinese domestic and external imbalances, a sky-high investment share of GDP, [...]
We’ve followed the development of wealth management products (WMPs) with interest on this blog. These financial products act as alternative to deposits, soaking up funds from investors seeking to escape low interest rates on bank deposits. While many analysts have greeted the proliferation of WMPs as backdoor interest rate liberalization, we’ve been more skeptical. Source: CNBenefit A [...]
Short of cash to support projects local governments search for alternatives to bank loans As we covered last week, China’s National Development and Reform Commission (NDRC) has approved a flurry of local infrastructure projects since the third quarter of 2012 worth Rmb 5.06 trillion (closer to $1 trillion accumulated for the whole of 2012). These [...]
Although we have been critical of the pace of reform in China in recent years, it is important to acknowledge the flurry of activity that has taken place in the first half of this year. The Chinese and Western press have been chock-full of new financial initiatives pushed forward by policymakers. Most of these initiatives [...]
China is conducting a large experiment with interest rate liberalization, albeit in an uncontrolled and seemingly unplanned way. The pace of official interest rate liberalization has been glacial since 2004, only recently revived with the decision to increase flexibility around the benchmark deposit rate. Instead, an alternative system of unregulated deposits called wealth management products [...]
China’s extraordinary real estate boom may finally be over. Multiple indicators suggest that China is on the precipice of a significant market correction. Prices are down in more than half of the 70 cities surveyed by National Bureau of Statistics. Beyond price data (which is subject to some skepticism), residential floor space under construction, residential [...]
Criticism of bank profits has now reached the highest levels of the Chinese political system. In a national radio address this week, Premier Wen Jiabao stated that China’s large banks were excessively profitable. Wen’s solution was to open the system up to private capital and smash the monopoly of the large banks. He even referred [...]