China in serious danger from shadow banking

Billionaire American investor George Soros says China has a few years to control shadow banking risks.

Soros said the expansion of nontraditional financing or shadow banking had parallels with the cause of the current global financial crisis that began in 2007.

"I’m sure the authorities are aware of the dangers,” he said. “They have both the skills and the resources to deflate an incipient bubble gradually."

Aggregate financing, an indicator started by the People’s Bank of
China, the central bank, in 2011 to provide a broader gauge of funding, more than doubled to a record in January from a year earlier.

"If the American experience is any guide, the authorities have a couple of years to bring shadow banking under control," said Soros. "It’s of utmost importance that the authorities should succeed. Not only for China, but also for the world."

Soros believes China can keep its economic growth model ". . . for another year or two, but not for another decade."

The transition will not be easy because fewer investments might result in slower growth and increase the chances of a "hard landing," he said. Last year saw the beginnings of a hard landing as some borrowers, especially in housing, paid higher interest rates, Soros said. That increased the risk of loan defaults.