China Makes Progress In Anti-Shadow Banking Efforts

Chinese regulators say they have made progress in efforts to curb the nation’s shadow banking sector, according to reports in the New York Times on  Friday (Aug. 18).

The Prudential Regulation Bureau said it has reached initial targets in its crackdown on illicit banking in China, which includes unregulated lending, and developed new regulations to curb such practices. Reports said the regulator has created 20 sets of new rules for authorities to increase oversight of China’s financial services industry, pertaining to online lenders and other players in the market, including policy banks and asset management companies.

Reports added that the China Banking Regulatory Commission will look to ensure these regulations will not have a negative effect on the overall economy, according to the Prudential Regulation Bureau head Xiao Yuanqi.

Xiao’s update on the matter follows the CBRC’s decision to extend by two months a deadline for China’s banks to submit their risk assessments, according to Reuters. The CBRC said that banks’ self-assessments are nearly complete.

Xiao highlighted inter-bank, wealth management and off-balance sheet businesses as areas of the financial services space that are particularly concerning for regulators and the banking industry. Earlier this year the CBRC increased its focus on off-balance sheet wealth management products, which reports said were a major part of the overall shadow banking market. It has also increased its crackdown on risky lending practices as bad corporate debt in China rises to new levels.

Concerns over nonperforming loans in China caught the attention of the International Monetary Fund last year, with analysts noting that the nation’s total debt is about 225 percent of total GDP, with most of it held by business borrowers.

At a conference, the IMF described these debt levels as “a key fault line in the Chinese economy.”

Now, the CBRC is pushing for banks to offload nonperforming loans, with the Policy Research Bureau also preparing to establish a “creditor committee system,” reports said, to help banks restructure corporate debt and reduce NPL levels.