The $15 trillion shadow over Chinese banks

February 1, 2014 Share It | Print This

The Telegraph Reports:

Speaking for the first time since her departure from Fitch last year, Chu, who has taken a new job at Autonomous, the respected independent research firm, says she remains adamant that a Chinese banking collapse of some description remains not just an outside chance, but a certainty.
“The banking sector has extended $14 trillion to $15 trillion in the span of five years. There’s no way that we are not going to have massive problems in China,” she says.
Behind these problems lie a baffling range of “trusts”, “wealth management products” and foreign-currency borrowings that have allowed indebtedness to expand even as the authorities have attempted to clamp down on mainstream lending by the big banks.
Chu’s warnings have carried particular weight in recent weeks as the Industrial and Commercial Bank of China backed away from a 3bn renminbi (£297m) trust it had sold to its customers. The move prompted fears this could become China’s “Bear Stearns moment”, a reference to the abandonment by the defunct US broker of several sub-prime funds in the early stages of the West’s 2007 credit crisis.
In the event, a default of the ICBC trust was averted, but Ms Chu remains clear that the linkage between the official banking system and its shadow twin remains a threat.