Chinese regulator says shadow banking sector needs constant scrutiny to guard against risks spilling over into the economy
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A top official at China's banking and insurance watchdog stressed the need for tighter scrutiny to guard against shadow banking risks, while pointing out that regulatory efforts had significantly reduced activity in the sector.
China needs to dismantle shadow banking risks and strengthen regulation to reduce related risks in the banking system, Liang Tao, vice-chairman of the China Banking and Insurance Regulatory Commission, said at a forum over the weekend.
Liang noted that China's shadow banking sector had shrunk by 29 trillion yuan (US$4.3 trillion) as of end June from an all-time peak, which he did not specify.
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China's shadow banking sector, which includes wealth management fund products, entrusted loans, small credit and peer-to-peer loans, was estimated at 84.8 trillion yuan in 2019, equivalent to 86 per cent of gross domestic product and 29 per cent of the nation's total banking assets.
Liang Tao, vice-chairman of the China Banking and Insurance Regulatory Commission, pictured in November 2020. Photo: Handout alt=Liang Tao, vice-chairman of the China Banking and Insurance Regulatory Commission, pictured in November 2020. Photo: Handout>
Some products in the banking system have relatively big hidden risks because of their complicated structure, while inappropriate financial innovation has led to new variants of shadow banking, state media Securities Daily quoted Liang as saying in a report on Saturday. More caution should be exercised, he said.
The comment highlighted regulators' growing concerns of financial risks in the banking system amid scandals in Henan and Anhui provinces as well as a mortgage-payment revolt that has spread to over 90 Chinese cities.
China should strengthen the monitoring of risks of shadow banks and prohibit their illegal practices, Liang said. Financial institutions should revamp their businesses in accordance with the new asset management rules to avoid disorderly leverage.
In 2018, China had introduced rules to clamp down on shadow banks and regulate off-balance-sheet financial activities by asset management firms, giving them until the end of 2021 to comply with the rules.
The Henan and Anhui banking crisis began to unfold when savers were denied access to their accounts at a number of rural banks in two provinces due to a system upgrade on April 18, leading to protests from disgruntled customers. The value of frozen funds is estimated at 40 billion yuan. China's 4,000 small- and medium-sized banks account for nearly a third of total banking assets in the country.