Chinese ’shadow debt’ an $18.5 TRILLION market which could COLLAPSE the banking system
AN INVESTIGATION into China’s shadow banking sector has revealed how the threat posed by the country’s rapid accumulation of debt could push Beijing towards a financial crisis.
By DAVID DAWKINS
Fri, Dec 29, 2017
Shadow debt broadly refers to a type of wealth management products (WMPs) that are sold off the books to China’s swelling middle-class as they look for risk-free savings options preferable to the gambling culture of the stock market while offering superior returns when compared to the savings rates offered by banks.
Savers are usually offered terms of around 10 per cent for investments around £500,000 by private wealth manager at the bank.Article Continues Below
These financial instruments have ballooned into a $18.5trillion market and include everything from investments in commercial property to a small business or a corporate bond.
But this snake-oil market of invisible investments is only made possible by a willing customer base still navel-gazing over their role in China’s economic growth.
And no project is deemed worthless.
Last year, when the Financial Times asked a WMP saleswoman at an investment bank where their money would be going, the salesperson is reported to have replied: “I think it’s a bridge in Nanjing.”
Conducted outside the normal banking system, lending like this is at the heart of China’s massive shadow banking industry.