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December 18, 2017

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China targets ‘gray rhinos’ in financial sector

“GRAY rhinos” have become the most hunted species in China — not on the prairies but in the financial sphere.

Slow, heavy and easy to neglect, rhinos can suddenly charge flat out, delivering a fatal attack — as can financial risk across the country.

The term became popular after a 2016 book by US policy analyst Michele Wucker who used it to depict a highly probable, high impact financial threat that was often widely ignored.

The People’s Daily, the Communist Party of China flagship newspaper, picked up the metaphor in July to warn of financial risks, triggering widespread discussion.

In the past year, authorities have made notable progress in its bid to bring to heel some of the major “gray rhinos,” generally shadow banks that pose significant threat to the economy.

Global ratings agency Moody’s this month predicted a stable outlook for Chinese financial institutions through 2018, citing strengthening regulations and steady economic growth.

“China’s leaders have made financial stability one of their top priorities. Given the size and importance of the Chinese market, with the world’s largest banks and second-largest stock market, that is welcome news for China and the world,” said Ratna Sahay and James P. Walsh, two senior officials at the International Monetary Fund, in a blog post last week.

For years, banks seeking higher profits, depositors lacking decent investment returns and companies having difficulties in securing bank loans have combined to drive the fast growth of shadow banking, which takes place outside regulatory scope, causing risks to financial stability.

To curb shadow banking growth, authorities have tightened their grip on interbank activities and off-balance-sheet wealth management products. China’s 100 trillion-yuan (US$15.1 trillion) asset management business will also be put under stricter scrutiny.

Amid the clampdown, China’s total shadow banking assets barely grew during the first six months of 2017 and fell as a percentage of gross domestic product for the first time since 2012, Moody’s said in a report last month.

Both interbank assets and liabilities, major indicators for shadow-banking activities, dropped in the first 10 months, while wealth management product growth slowed sharply from a year earlier, the China Banking Regulatory Commission said.

“The government will remain keen on adopting coordinated policy measures to curb shadow banking and interbank activities and to address key imbalances in the financial system,” said Sherry Zhang, a Moody’s analyst.

After soaring property prices made housing affordability and risks of real estate bubbles a growing concern, authorities have reiterated that “housing is for living in, not for speculation.”

Since last year, dozens of local governments have passed or expanded restrictions on house purchases and increased minimum downpayments. Property developers, real estate agencies as well as Internet finance and micro-loan companies were prohibited from offering illicit downpayment financing for buyers.

The effort has paid off. Home-buying fever has cooled in hotspot cities, with both new and second-hand home prices in first-tier cities posting slower year-on-year growth for the 13th consecutive month in October.


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