Shadow banking in China resumes massive growth

End to cash crunch fueling recovery.

Shadow banking remains firmly entrenched in China since over 95% of the country’s 40 million small businesses are unable to secure bank loans. JPMorgan estimated shadow banking was worth US$5.9 trillion in May, equivalent to 69% of GDP.

The People’s Bank of China, the central bank, revealed that aggregate financing stood at US$257 billion two days ago. Banks’ new renminbi loans comprised 45% of this total compared to 87% in July due to a rise in non-traditional credit outside the banking system.

Experts said bankers’ acceptance bills and entrusted loans are very much linked shadow banking. Both these products fall within aggregate financing.

Entrusted loans hit US$48 billion in August compared to US$32 billion in July, a huge 50% jump. Bankers’ acceptance bills increased to US$49.5 billion in August as against a US$28.9 billion drop in July. Experts noted that the sudden jump is a bad signal.

The jump in credit growth came after a recorded four straight declines and points to a new growth in shadow banking, increasing the risks it poses for the financial system.