A new report on the shadow banking sector issued by the China Banking and Insurance Regulatory Commission (CBIRC) provides a more detailed definition of “narrowly defined” shadow banking operations that are considered to pose a greater risk to the Chinese financial system.
The “China Shadow Banking Report” (中国影子银行报告) recently issued by CBIRC categorises “narrowly defined shadow banking” as encompassing six forms of higher risk lending activities, including:
- Interbank special purpose vehicle investment and interbank wealth management;
- Certain bank wealth management operations such as non-standard debt;
- Entrusted loans;
- Trust loans;
- Online lending and P2P loans;
- Non-equity privately raised funds.
The Report points out that Chinese shadow banking first began to see especially rapid growth after 2008, with annual increases rising to over 20%.
Since 2017 China’s financial regulators have sought to “defuse” the shadow banking sector, bringing broadly defined shadow banking down from a peak of 100.4 trillion yuan at the outset of 2017 to 84.8 trillion yuan as of the end of 2019, for a 16 trillion yuan reduction.
Over the same period higher risk, narrowly defined shadow banking fell to 39.14 trillion yuan, for a reduction of 12 trillion yuan compared to its historic peak.
The Report flags ongoing pressure on the sector, highlighting the need to “establish and improve sustained regulatory systems for shadow banking.”