China's Alternative Banking System - The Shadow
影子银行系统
The lending in this alternative system is estimated at 25% (US$2.2trillion or RMB14.5T) of total lending.
Trust companies - taking investment and promise fixed return. In turn, invest in high risk investment (or loan out to borrower without asset guarantee). Often times, trust companies is highly leveraged - invest more than they are capable of financing (e.g. property) but hoping for return that is sufficient to cover their investment activities.
Pawn shops - they take everything and anything as collateral, jewellary, watch, gold, property. The danger is with property as the value is not as stable as gold etc.
Guarantors - 19,000 of these running it as business. They take a cut from the amount that bank lend to borrowers.
Underground banks - especially in the area of trade financing (letter of credit) allowing the "bank" to pay seller and collects from buyer.
Buyer who holds letter of credit can use it as collateral to borrow. As the main players in these are commodoties, there is a high risk that the same commodities are used to obtain multiple letter of credit and therefore loan.
Wealth Management Product - in theory, these bank can invest up to 70% of the fund in areas customers have zero information on. Some banks MAY have been using new deposit (from customer) to fund old losses - that is essentially a Ponzi scheme!
Globally though, to put things in perspective, global shadow banking is a $67 trillion industry (according to Reuters' report 2011/2012). China's $2.2trillion is just a small fraction. The report was done by Financial Stability Board (FSB). Top 3 countries are United States ($23T), Euro ($22T), UK ($9T).
posted by PlaThai @ 1:41 AM
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