Chinese Shadow-Banking System Remain Strong With Latest 20% Loan Fiasco

China property developer Zhang Fuguo was rejected by banks for a loan to help keep building two office towers in the central city of Zhengzhou. So he turned to a manufacturer of water and gas meters.

The 50 million yuan ($8.2 million) loan last month at a 20 percent interest rate will help Zhang pay workers and buy materials and was like “delivering coal on a snowy day,” he said. It was less so for one board member at lender Henan Suntront Technology Co. (300259), who abstained from approval on concern that Zhang’s company would fail to repay the debt.

So-called entrusted loans, in which banks are “entrusted” with funds as middlemen between companies, increasingly grease the wheels of China’s economy, withstanding a crackdown on shadow banking this year and rising to a record 293.8 billion yuan in August. The increase was part of a surge in non-bank credit that may add to default risks threatening Premier Li Keqiang’s efforts to sustain 7 percent expansion this decade.

Bloomberg

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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu