中国経済リスク 「影の銀行」収束への険しい道

The Yomiuri Shimbun March 23, 2014
China faces difficult task in trying to reduce risks of ‘shadow banking’
中国経済リスク 「影の銀行」収束への険しい道(3月23日付・読売社説)

China must rein in the expansion of “shadow banking” activities that are threatening to drag the Chinese economy down to avert financial turmoil. The Chinese government is now being confronted by a thorny policy-handling task.

A struggling manufacturer of solar cells and panels in Shanghai failed early this month to meet interest payments on corporate bonds it issued, the first debt default in the history of China’s corporate bond market.

In this connection, Chinese Premier Li Keqiang has said the government was prepared to allow defaults on some financial products. This switch on China’s financial policy is significant, and should be considered carefully.

Financial authorities in China have so far been bailing businesses and investors out of trouble, but there can be no denying that doing so has contributed to creating moral hazards among market players.

Allowing the solar equipment maker’s bond default may have been aimed at warning investors by informing them that there may be bond defaults in the future depending on circumstances.

This seems to indicate a sense of crisis that shadow banking, or financial transactions not mediated by commercial banks, have continued to bloat, threatening to gnaw away at the Chinese economy as a whole.

Many investors have flocked to speculative financial instruments, such as those marketed by nonbank entities trumpeting high yields. There have been many instances such as investment companies under the umbrella of local governments engaging in real-estate development projects by leveraging such investment funds, while companies unable to obtain loans from banks have been issuing corporate bonds with nonbanks as subscribers.

If a local government or company with a huge amount of liabilities faces a funding shortfall, it will be unavoidable for investors to suffer losses.

‘China risk’ affecting stocks

Even more troublesome is the fact that the actual state of shadow banking services has been shrouded in opacity. An estimate has been released that funds poured into shadow banking stand at a value amounting to half of China’s gross domestic product, so Beijing’s decision to place curbs on the swelling shadow banking money is right and proper.

In addition to the policy of allowing bond defaults, it is also noteworthy that Gov. Zhou Xiaochuan of the People’s Bank of China has said the central bank is considering the liberalization of bank deposit rates, the upper limits on which are currently fixed, in one to two years.

It seems that China’s financial authorities, through the liberalization of interest rates, are ready to brake the flow of capital that has been pouring into speculative financial instruments, as investors are averse to low-interest bank deposits.

Drastic reform measures for reducing shadow banking activities are indispensable. There also are concerns, however, over the adverse impact on the Chinese economy if the envisioned reform is undertaken too hastily.

The adverse consequences could be aggravated in the event of a contraction of credit, resulting in local governments and businesses to have cash-flow problems.

Stock prices in New York, Tokyo and elsewhere have continued to fluctuate erratically with the “China risk” being cited as one of the major factors behind the instability.

Will China be successful in dowsing the overheated economic bubble and in soft-landing the country’s economy, which has continued to slow down, by putting it on a stable growth track of around 7.5 percent a year?

China, the world’s second largest economic power, is continuing to walk on a tightrope.

(From The Yomiuri Shimbun, March 23, 2014)
(2014年3月23日01時42分  読売新聞)

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