In China’s Shadow Banking the WMPs Are Just Beginning of Problem [ANALYSIS]

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restrictions on WMPs in March, they were still being actively marketed. Moreover, a non-bank-affiliated business was offering yield well above the 4-6% we were told about by local banks. This was also the first time we had been told that a Japanese person could buy a gold-linked WMP, as long as they opened an account with the metals exchange in Tianjin. If we hadn’t simply been window shopping, the sales representative was ready to do the necessary paperwork to open the account there and then. This was a particularly interesting encounter because earlier that day we had visited the stock-issuing Bank of Nanjing, which insisted it knew nothing of WMPs. We had entered the shop that evening with the hope of finding out what was really going on.

July 5: Wuxi

China’s Unsuccessful Attempts To Control Shadow Banking

After visiting some local companies in Wuxi, we travelled to Shanghai. We spent four of the five business days on this China trip in regional cities, in a bid to understand more about the grassroots of China’s economy. Eighteen months ago, we learned of the mysterious “structural deposits” being sold by banks in Beijing and nine months ago we came across the somewhat unsettling WMPs. Both products have since become available throughout China. On this visit, we learned about the sharp rise in lending to the real estate industry by micro-finance companies that are well-entrenched in regional areas, and from the mega banks we learned about the “asset management plan” products that securities companies are starting to sell in Beijing. We are interested to see what impact these new trends have on China in the next six months. During this trip, we also learned about Chinese manufacturers that are developing products as de facto standards, at least in the domestic market. These include a company with 40% market share in fuel injection systems for heavyweight trucks and a company that is switching from the standard choice of titanium to aluminum alloys to make heat exchange plates for power stations and desalination plants. Alongside China’s unsuccessful attempts to control shadow banking, we see early signs of a new breed of manufacturing company. Our regionally-focused visit left us with a vivid impression of the two sides of China’s economy.

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