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December 5, 2018

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Contraction in shadow banking set to continue

CHINA’S broad shadow banking assets contracted by 3.6 trillion yuan (US$520 billion) to 62.1 trillion in the first three quarters of 2018, according to a report by Moody’s Investors Service.

The rating agency predicted that decline will be at a slower pace in 2019.

As a result, the country’s broad shadow banking sector now totaled 70 percent of GDP compared with 79 percent at the end of 2017, and the peak of 87 percent at the end of 2016, the report said.

Moody’s noted that the contraction has primarily been in core shadow banking activities including trust loans, entrusted loans and undiscounted bankers’ acceptances, which shrank by 2.3 trillion yuan in the first nine months as of September 30.

Assets funded by the lenders’ off-balance sheet wealth management products and asset management products of non-bank financial institutions dropped by a further 1.6 trillion yuan during the same period.

However, reduced shadow credit supply has restrained overall credit expansion and as a result, there has been signs that the deleveraging campaign is slowing the economy.

In response, authorities have eased monetary policy and announced a range of measures to preserve growth and financial stability.


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