Wednesday, July 10, 2013

Chinese Shadow Banking


http://www.reuters.com/article/2013/07/08/us-china-shadow-idUSBRE96712520130708

Shadow banking bolsters China Inc as Beijing tightens credit


An employee carries bundles of 100 yuan Chinese bank notes to store after counting at a bank in Taiyuan, Shanxi province July 4, 2013. REUTERS-Jon Woo

By Samuel Shen and Michael Flaherty

SHANGHAI/HONG KONG | Mon Jul 8, 2013 6:39pm EDT
(Reuters) - Wang Zhiyong, the founder of a Shanghai-based gift card company, tried twice to get a bank loan for his business and failed both times.

So Wang turned to China's vast network of alternative lenders, opting for a so called "curb side" loan. Such a loan is just one segment of the country's shadow banking system, which includes pawn shops, credit guarantee firms, trust companies and other mechanisms as sources of funds for Chinese borrowers.

"Banks never lend a hand to start-ups like us," said Wang, 40. "They only go after big companies and state-owned firms."

The dearth of bank credit available to China's millions of small to mid-sized companies is expected to tighten as authorities seek to rebalance the world's second-biggest economy.

The central bank briefly allowed short-term interbank rates to surge last month to crack down on lending tied to property speculation and bloated local government debt.

The crackdown, however, only reinforced the dependency of many of China's non-state backed enterprises on the shadow banking industry.

Fitch says some 36 percent of outstanding credit in China, or 34 trillion yuan ($5.55 trillion), lies outside banks' loan portfolios, a huge pool of money which market participants find difficult to track and which could cause an ugly credit mess in a steeper slowdown.

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