According to new data, china’s shadow Banking is now a $37 trillion problem.
The global economy is currently in the middle of a period of strength. Business optimism is strong, and most regions are showing robust economic growth and falling unemployment.
Even Japan and Europe, the two sick men of the developed world, are showing signs of improvement. Growth is sluggish, but it’s better than nothing.
Meanwhile, China, which only two years ago was being blamed for sowing the seeds of the next financial crisis, has been quietly getting its house in order, although new concerns are now starting to emerge about the country’s debt pile.
- Chinese Debt Collapse? On Par With Greece Like Wheel Out Of Control
- China's debt servicing costs to explode as Government Credit Soars
- US Debt To GDP Hits A Record Level But China Is Trying
The World Bank's October report on the East Asian and Pacific economies, claims that China's shadow banking sector is “creating additional vulnerabilities in the financial sector,” as entrusted loans, trust loans, and bankers’ acceptances, had "soared from under 7% of GDP in 2005 to over 31% of GDP in 2016."
China's Shadow Banking Size
The scale of this problem should not be underestimated. It won't be known just how serious the problem is until loans start going bad, which might not be far away if the US Federal Reserve has anything to do with it (at the end of September the Bank of International Settlements warned that higher interest rates in the US could have a knock on effect in China). The Peoples Bank of China recently tried to put a figure on the total debt pile estimating that the total value of shadow banking loans could be in excess of $37 trillion. As the financial blog Zerohedge reported yesterday:
"Nobody really knows how big China's Shadow Bank ecosystem is, but the PBOC recently offered a rather shocking guess in their 2017 Financial Stability Report (pg.48). China's Off-Balance-Sheet, un-regulated, "Shadow" loans have grown to nearly US $37 Trillion (RMB 252.3 Trillion) and have surpassed China's US$34 Trillion, "On-Balance Sheet" bank assets as of the close of 2016. They also restated the 2015 numbers, increasing the 2015 figures to US$ 28 Trillion (RMB 189 Trillion), roughly doubling the 2015 figure."
What's more concerning is that nearly a decade after the financial crisis struck, the enormous volume of regulations that have been introduced to try to stabilize the global banking industry, have not made much difference. According to the World Economic Forum, big banks have only become bigger, and the top global banks are still ‘too big to fail’:
“The largest 30 banks hold almost $43 trillion in assets, compared to less than $30 trillion in 2006, and concentration is continuing to increase in the US, China, and some European countries."