{"id":17265,"date":"2016-02-01T16:08:45","date_gmt":"2016-02-01T21:08:45","guid":{"rendered":"http:\/\/olduvai.ca\/?p=17265"},"modified":"2016-02-01T16:20:31","modified_gmt":"2016-02-01T21:20:31","slug":"meet-chinas-latest-1-8-trillion-problem","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=17265","title":{"rendered":"Meet China’s Latest $1.8 Trillion “Problem”"},"content":{"rendered":"

Meet China’s Latest $1.8 Trillion “Problem”<\/a><\/h3>\n
Last summer\u00a0we outlined<\/a>\u00a0how Chinese banks obscure trillions in credit risk.<\/div>\n
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The powers that be in Beijing aren\u2019t particularly keen on allowing the banking sector to report \u201creal\u201d data on souring loans – especially given the fragile state of the country\u2019s economy. In some cases, the Politburo will pressure banks to simply roll over bad debt, effectively kicking the can.<\/p>\n

In addition, banks carry around 40% of their credit risk outside of \u201cofficial loans.\u201d Here\u2019s what Fitch had to say last year:<\/p>\n

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\u201cOff-balance-sheet financing (I.e. trust loans, entrusted loans, acceptances and bills) accounted for 18% of official TSF stock at end-2014, up from less than 2% just over a decade ago,\u201d Fitch wrote. \u201cOf the off-balance-sheet exposure reported at individual banks, this is equivalent to 15% of total assets for state commercial banks and 25% for mid-tier commercial banks, on a weighted average basis. These ratios would be even higher if we included entrusted loans (see Figure 2), although this information is not disclosed at all banks.\u00a0Fitch estimates that around 38% of credit is outside bank loans.”<\/strong><\/em><\/div>\n

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In many cases, channel loans (so credit extended by banks via non-bank intermediaries) are carried as “investments classified as receivables” on the balance sheet.<\/p>\n

Now, as more Chinese firms lose access to traditional financing amid rising defaults and increasing economic turmoil, banks are increasingly turning to channel loans as a way of extending credit.<\/p>\n

In turn, the amount of “investment receivables” on many mid-tier banks’ books is soaring to dizzying levels<\/strong>. “Mid-tier Chinese banks are increasingly using complex instruments to make new loans and restructure existing loans that are then shown as low-risk investments on their balance sheets, masking the scale and risks of their lending to China’s slowing economy,”\u00a0Reuters reports<\/a>. “The size of this ‘shadow loan’ book rose by a third in the first half of 2015 to an estimated $1.8 trillion, equivalent to 16.5 percent of all commercial loans in China.”<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Meet China’s Latest $1.8 Trillion “Problem” Last summer\u00a0we outlined\u00a0how Chinese banks obscure trillions in credit risk. The powers that be in Beijing aren\u2019t particularly keen on allowing the banking sector to report \u201creal\u201d data on souring loans – especially given the fragile state of the country\u2019s economy. In some cases, the Politburo will pressure banks […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[49,63,2045,12153,130,195,200,3108,6559,12152,683,6876,4114,4318],"class_list":["post-17265","post","type-post","status-publish","format-standard","hentry","category-economics","tag-balance-sheet","tag-banks","tag-beijing","tag-channel-loans","tag-china","tag-debt","tag-default","tag-fitch","tag-non-performing-loans","tag-npl","tag-reuters","tag-shadow-banking","tag-transparency","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17265","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17265"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17265\/revisions"}],"predecessor-version":[{"id":17267,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17265\/revisions\/17267"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17265"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17265"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17265"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}