Growth in China trust assets slows as shadow banking crackdown bites

Tue Aug 6, 2013 4:45am EDT
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By Gabriel Wildau and Lu Jianxin

SHANGHAI (Reuters) - Growth of China's trust sector, the largest component of the country's so-called shadow banking system, slowed markedly in the second quarter after a government clampdown on risky lending.

China's top leaders have signaled concern over runaway credit growth and the risk of a debt crisis sparked by local governments and firms borrowing at high interest rates from non-bank lenders, especially trust companies.

In June, the central bank engineered a short-term cash squeeze as a warning to banks and trusts to scale back risky lending practices.

Data published by China Trustee Association late on Monday showed total assets managed by China's 67 trust firms reached a record-high 9.45 trillion yuan ($1.54 trillion) by the end of the second quarter.

While that was up 8.3 percent from the end of the first quarter, growth decelerated sharply from the 16.9-percent rise seen in the first quarter. In 2012, total assets managed grew by an explosive 55.3 percent.

"We've seen other signs before (of a slowdown in shadow banking), but this is more authoritative," said May Yan, China banks analyst at Barclays in Hong Kong.

Yan said that rules put in place by the China Banking Regulatory Commission (CBRC) in March restricting the proportion of a wealth management product's (WMP) underlying assets that may be comprised of loans and other illiquid credit assets to 35 percent contributed to the slowdown.

Reining in shadow banking is a key element in the leadership's campaign to shift the country's growth model away from its heavy reliance on debt-fueled investment.   Continued...

A businessman looks at his mobile phone as he walks in the financial area of Pudong in Shanghai May 30, 2013. REUTERS/Carlos Barria