Post by iowa55 on Sept 19, 2011 12:28:57 GMT -5
Craig Stephen's This Week in China Archives
Sept. 18, 2011, 8:42 p.m. EDT
More warnings on China’s debt
Commentary: Shadow banking sparks new worries
•China’s brave new world of P2P credit
111 By Craig Stephen
HONG KONG (MarketWatch) — Three years ago, China’s banks were widely applauded as they lent their way out of the last financial crisis, hauling much of the world with them. But now with these loans coming due and interest rates on the rise, officials and analysts are increasingly sounding the alarm.
Throw into the mix new revelations about the escalation of shadow banking, and it’s little surprise “China” and “subprime” are increasingly talked about in the same breath.
So far, the loans causing most unease are with local-government investment vehicles, estimated at up to $1.7 trillion. Cheng Siwei, a former vice-chairman of the standing committee of the National People’s Congress told the World Economic Forum last week in Dalian: “Our version of the U.S. subprime crisis is the lending to local governments, which is causing defaults.”
But this is by no means the only lending worry on the horizon.
On top of this is the spread of unofficial shadow banking, which risks adding another unpredictable dimension to China’s lending-stimulus hangover.
New reports suggest lending outside the official banking system has now spread from corporates to individuals.
This provides a fresh headache for regulators. Last week, the China Banking Regulatory Commission warned banks to stop their staff from facilitating so-called “P2P” (peer to peer) lending. This is a practice whereby individual lenders and borrowers are matched using P2P intermediaries, often through the Internet. ( See Caixin Online report on peer-to-peer lending. )
With some interest rates reportedly up to an annualized 25%, money is reportedly flooding into this new lending channel, not unsurprisingly.
The regulator flagged concerns over underwriting standards, repayment ability, and individuals leveraging money they have borrowed from banks.
Other forms of shadow lending include the traditional loan business re-packaged into trust products and wealth-management products.
It is not too hard to see why, here too, comparisons with subprime lending in the U.S. are being made.
Much of China’s shadow banking to date that has attracted attention has been between corporates, with lending undertaken by non-banking institutions.
SG Research wrote in a recent report that putting an accurate figure on the scale of this lending is difficult, but it estimates nearly 3 trillion yuan ($470 billion) of formal commercial loans have been trickled down to underground banking. Nomura comes up with its own figure of 8.5 trillion yuan for China’s total shadow-banking loans, concluding the market should be rightly concerned.
Lending at higher-than-official lending rates makes this a very profitable business. More than a quarter of Yangzijiang Shipbuilding Holdings’ 23.73% pre-tax profits came from lending, according to its recent second-quarter results.
SG highlights that in several non-banking Chinese companies’ recent half-year accounts, such peripheral operations have accounted for one-third of profits.
Sept. 18, 2011, 8:42 p.m. EDT
More warnings on China’s debt
Commentary: Shadow banking sparks new worries
•China’s brave new world of P2P credit
111 By Craig Stephen
HONG KONG (MarketWatch) — Three years ago, China’s banks were widely applauded as they lent their way out of the last financial crisis, hauling much of the world with them. But now with these loans coming due and interest rates on the rise, officials and analysts are increasingly sounding the alarm.
Throw into the mix new revelations about the escalation of shadow banking, and it’s little surprise “China” and “subprime” are increasingly talked about in the same breath.
So far, the loans causing most unease are with local-government investment vehicles, estimated at up to $1.7 trillion. Cheng Siwei, a former vice-chairman of the standing committee of the National People’s Congress told the World Economic Forum last week in Dalian: “Our version of the U.S. subprime crisis is the lending to local governments, which is causing defaults.”
But this is by no means the only lending worry on the horizon.
On top of this is the spread of unofficial shadow banking, which risks adding another unpredictable dimension to China’s lending-stimulus hangover.
New reports suggest lending outside the official banking system has now spread from corporates to individuals.
This provides a fresh headache for regulators. Last week, the China Banking Regulatory Commission warned banks to stop their staff from facilitating so-called “P2P” (peer to peer) lending. This is a practice whereby individual lenders and borrowers are matched using P2P intermediaries, often through the Internet. ( See Caixin Online report on peer-to-peer lending. )
With some interest rates reportedly up to an annualized 25%, money is reportedly flooding into this new lending channel, not unsurprisingly.
The regulator flagged concerns over underwriting standards, repayment ability, and individuals leveraging money they have borrowed from banks.
Other forms of shadow lending include the traditional loan business re-packaged into trust products and wealth-management products.
It is not too hard to see why, here too, comparisons with subprime lending in the U.S. are being made.
Much of China’s shadow banking to date that has attracted attention has been between corporates, with lending undertaken by non-banking institutions.
SG Research wrote in a recent report that putting an accurate figure on the scale of this lending is difficult, but it estimates nearly 3 trillion yuan ($470 billion) of formal commercial loans have been trickled down to underground banking. Nomura comes up with its own figure of 8.5 trillion yuan for China’s total shadow-banking loans, concluding the market should be rightly concerned.
Lending at higher-than-official lending rates makes this a very profitable business. More than a quarter of Yangzijiang Shipbuilding Holdings’ 23.73% pre-tax profits came from lending, according to its recent second-quarter results.
SG highlights that in several non-banking Chinese companies’ recent half-year accounts, such peripheral operations have accounted for one-third of profits.