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China Debt & Shadow Banking At A Glance
China’s debt buildup started since the global financial crisis and has reached RMB216 trillion in 2017 with total debt-to-GDP at 256% compared to RMB45 trillion (141% of GDP) a decade ago. This is a 377% increment in debt within 10 years.
Corporate debt accounted for the biggest pie with 63% share.
In terms of the pace of increment, household debt increased the fastest at 7.2 times to RMB41 trillion in 2017, from RMB6 trillion in 2008.
In 2017, ratio of household debt to GDP was at 48% up from 18% in 2008.
In comparison, China’s debt balance is relatively similar with those of the developed economies. Instead, it is the speed of increment that is of concern. The increase in debt-to-GDP ratio for China was 114% between 2008-2017, compared to 15% and 47% rise for US and Japan respectively.
Debt remains an essential tool for financing economic growth, however, to avoid the “Minsky Moment”, China’s challenge will be to contain future debt increases without compromising on economic growth.
2017 Share of Contribution To China’s Total Debt
How Big Is The Mounting Debt?
A Grasp Of The Numbers
300%IMF’s forecast of China’s total debt to GDP by 2022
45 RMB TrillionSize of China’s shadow banking in 2017
55%China’s shadow banking to GDP in 2017
256%China’s total debt to GDP in 2017
83 RMB Trillion
Size of China’s economy in 2017(2nd largest economy in the world)
6.9%China’s annual real GDP growth in 2017
7.1%China average growth rate in last 5 years (2013-2017)
27%Share of China’s contribution to world GDP growth in 2017
60%
0
120%
180%
240%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
256226211195181182178
141
243 255
China’s Total Credit To Non-Financial Sectors % of GDP
Corporate Government Household
Corporate Government Household
90%
0
180%
270%
360%
CN CA EM JN UK AU US DE IN ID
69
249234258
361
193
286256
171124
Debt Comparison % of GDP
Gover
nmen
t
Household Corporate19%
63%18%
Global Economics & Markets Researchwww.uobgroup.com/research
Wednesday, 08 August 2018
Debt Increment Between 2008-2017
HOUS
EHO
LD
▲ 7.2 times to RMB41 trillion
▲ 4.6 times to RMB40 trillion
▲ 4.4 times to RMB135 trillion
GO
VERN
MEN
T
CORP
ORA
TE
Source: CEIC, Macrobond, Bloomberg, FSB, BIS, Media Reports, UOB Global Economics & Markets ResearchDate: 08 August 2018
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There is no single agreed definition for shadow banking. PBoC’s Financial Stability Report (2013) defines shadow banking as “credit intermediation involving entities and activities outside the regular banking system with the functions of liquidity and credit transformation, which could potentially cause systemic risks or regulatory arbitrage.”
There is a range of estimates for the size of shadow banking in China. Based on UOB’s estimation, shadow financing in China soared 65% to RMB45 trillion (55% of GDP) in 2017 from RMB28 trillion in 2013 (46% of GDP).
Most shadow financing in China took place through entrusted & trust loan and wealth management product (WMP). Banks market these high interest rate products as an alternative to traditional savings accounts. Investment in WMPs accelerated 229% to RMB12.5 trillion in 2017 from RMB3.8 trillion in 2013.
China has been attempting to curb shadow banking with tighter regulations and in April 2018, PBoC said the government will set up a statistics platform that will measure all financial activities, from leveraged securities investment to local government borrowing. The move is part of the government’s campaign to clean up its unruly shadow banking and control financial risk.
We expect shadow banking activities to moderate as the government continues to keep track and tighten regulations.
In 2017, the outstanding value of WMPs issued by banks was RMB29.5 trillion, of which joint-stock and SOE banks accounted for 74% share.
What About The Shadow Banking Impact?
Entrusted Loan
Informal Lending
Trust Loan
P2P Loan
Banker’s Acceptance Bill
Trust Investment In Bond
WMP In Bond Markets
30.8%
4.0% 1.
8%
18.8%
45RMB Trillion
27.4%
7.5%
9.8%
Composition of Shadow Financing In 2017
Entrusted Loan
WMP In Bond Market
Trust Loan
Banker’s Acceptance Bill
Informal Lending
Trust Investment In Bond Market
P2P Loans
Breakdown Of Shadow FinancingRMB Trillion
2017
14.07.2
3.8
4.8
6.9
0.7
12.5
8.5
4.4
3.4
1.8
0.8 2013
% Share Of Outstanding WMP By Bank Type In 2017
Agriculture Banks
Others
Foreign Banks
City Commercial
Banks
Joint-Stock Banks
16.0% 5.3%
40.5%
RMB29.5 trillion
1.3%
3.2%
SOEBanks
33.8%
Simplified Lending Cycle Of A Wealth Management Product
Investors Bank
Trust Company
Company
WMP
Invest money via a bank...
...in a wealth management
product
or deposits that money at a bank
which turns around and
invests it
The funds get transferred to a trust company
the trust lends the money out to a company