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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 [...]
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 [...]
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 [...]
The Chinese press is full of stories documenting the difficulties small and medium enterprises (SMEs) have obtaining financing. Contrary to popular belief, the problem is not that SMEs are being crowded out by large enterprises. The SME share of total business loans has been relatively stable in the past several years. Moreover, the pace of [...]
The RMB727 billion drop in deposits in the banking system this past month may further limit the ability of credit-strapped banks to make loans. The fall in deposits is another example of the impact of distorted interest rates. Negative real interest rates on deposits (averaging -.5 percent since 2004) has slowed the accumulation of new [...]
Over the past two years China’s authorities have constricted the growth of credit in an attempt to combat inflation and rein in excessive loan growth. This has made it more difficult for a variety of businesses to obtain credit, particularly bank loans. As a result, firms are increasingly turning to the shadow banking industry to [...]