China Host to 16% of Global Shadow Banking Sector

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A new report from the Swiss-based Financial Stability Board (FSB) on the international shadow banking indicates that China’s share of the global sector surged to 16% by 2016.

FSB’s Global Shadow Banking Monitoring Report for 2017 is the first to include a classification of non-bank financial entities in China in the board’s narrow measure of shadow banking, for what it refers to as a “conservative” assessment.

The report concludes that by 2016 China’s share of the global Other Financial Intermediaries (OFI) sector had risen significantly while that of advanced economies had seen a simultaneous decline.

“Since 2011, the UK and the US share of global OFI assets have decreased from 11.3% to 7.2% and 33.9% to 27.3% respectively, while that of China has increased from 2.2% to 9.6%,” said the report.

China has also seen its share of the narrow measure of shadow banking expand significantly during the five year period from 2011 to 2016.

“Compared to 2011, the US share of the total narrow measure for 29 jurisdictions declined, whereas China’s share and the Cayman Islands’ share increased over the same period,” said the report.

“As in previous years, the US had the largest narrow measure at $14.1 trillion in 2016, representing 31% of the total narrow measure assets reported by the 29 jurisdictions.

“The eight participating EU jurisdictions comprised the next largest share (with a combined $10.1 trillion, 22%), followed by China ($7.0 trillion, 16%), the Cayman Islands ($4.7 trillion, 10%), and Japan ($2.8 trillion, 6%).”

The report authors make the caveat that the 2017 monitoring exercise for the narrow measure of shadow banking is the first to include Chinese data, and as such the assessments are likely to be conservative.

“The business models and risk profiles of non-bank financial entities in China are relatively unique,” said the report. “The narrow measure for China will be further refined in future monitoring exercises as more granular data become available.”

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