Shadow Banking Grows in China

Wang Zhiyong, the founder of a Shanghai-based gift card company, tried twice to get a bank loan for his business and failed both times.

So Wang turned to China’s vast network of alternative lenders, opting for a so called “curb side” loan. Such a loan is just one segment of the country’s shadow banking system, which includes pawn shops, credit guarantee firms, trust companies and other mechanisms as sources of funds for Chinese borrowers.

“Banks never lend a hand to start-ups like us,” said Wang, 40. “They only go after big companies and state-owned firms.”

The dearth of bank credit available to China’s millions of small to mid-sized companies is expected to tighten as authorities seek to rebalance the world’s second-biggest economy.

The central bank briefly allowed short-term interbank rates to surge last month to crack down on lending tied to property speculation and bloated local government debt.

The crackdown, however, only reinforced the dependency of many of China’s non-state backed enterprises on the shadow banking industry.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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