Chinese banking industry under scrutiny with The Economist in Shanghai

Chinese banking industry under scrutiny with The Economist in Shanghai

Chinese banking industry under scrutiny with The Economist in Shanghai

The China-Britain Business Council co-hosted a seminar with The Economist in June to discuss the Chinese banking industry. Held at the British Centre in Shanghai, the discussion attracted over 80 participants including CBBC members and clients of The Economist.
Simon Rabinovitch, Asia economics editor of The Economist - who recently authored the special banking report 'Big but Brittle' for the magazine - spoke at the event along with Wang Yongqin, professor of economics at Fudan University.


A number of salient points emerged from the discussion:

  • China’s banking sector is big and getting bigger, with debt having accumulated over the past few years. As China increases its international engagement, this will have an bigger impact on the global economy. 
  • The shadow banking sector has grown dramatically in China in the past few years, in different forms including trust funds, wealth management products, etc. This is not necessarily a bad thing, as shadow banking reflects market conditions and market demand - but good regulation and coordination among regulators are required. 
  • Because of the nature of China's financial system, the government is in a better position to steer the outcomes than governments in most other countries. 
  • China’s status quo cannot be sustained indefinitely. Before the financial crisis only 1 yuan of credit was required to generate 1 yuan of additional GDP, whereas now almost 4 yuan is required.

Simon Rabonovitch outlined two possible paths for China:

1. Faster and bolder reform, which could lead to serious defaults and losses by both banks and shadow lenders/wealth management product investors; or
2. Gradual reform at the current pace, which carries the risk that further accumulation of debt could lead to a crash.

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