While China´s financial regulators have tried to prevent previous market panics, smaller banks have behind their backs been expanding credit lines to wealthy clients, says economist Arthur Kroeber, author of China’s Economy: What Everyone Needs to Know® to Dow Jones. The regulators now try to rein in those tools.
Dow Jones:
The growth of the sector has put regulators in a tricky situation. On the one hand, the credit generated by the products has helped some struggling companies get by. On the other hand, the growth of essentially off-balance sheet lending masks the extent of problematic loans in China’s banking system.
“A part of what is going on right now in China is that the banks, particularly the smaller banks, have expanded their balance sheets very rapidly, and the regulators are worried about this,” said Arthur Kroeber, a partner at the China- focused Gavekal Dragonomics research firm.
The document appears to target the risks related to wealth-management products that invest in stocks and other riskier assets, more than ones that concentrate on more-traditional assets such as loans to companies.
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