Could a banking crisis erupt in China? The commonly accepted answer among western analysts is no, for the simple reason that China has huge State owned banks that dominate the country’s banking industry. But dig a little deeper and a different picture emerges.
It turns out that within China’s smaller cities, the market share of the big banks fades away. Instead, local banks take over. With few national branches, these local banks will have a much more difficult time spreading risk geographically, and are thus more prone to failure.
Egged on by provincial leaders desperate to keep the wheels of GDP growth rolling forward and cash-strapped property developers, other institutions have jumped into Shadow Banking. And one of the biggest are Chinese insurance companies.
One of the theories of China’s slowing economy is that it will run into a “Lehman moment”. This is when a single financial institution collapses, threatening the entire banking system, ultimately creating a financial crisis.
The theory has neat predictive power: find the weak links among Chinese banks, pin down a useful measure of financial liquidity such as the interbank lending rate and you have a nice way of keeping tabs on the strength or weakness of China’s economy. The problem is the theory may be wrong.
Myanmar is facing a stark choice – open the doors to the rule of law or slide into Chinesestyle state capitalism run by the military. So far, it looks like the country could go either way.
Conducting company due diligence in China can be a risky undertaking. Company filings are inadequate, financial statements often cloak the truth, and executives are prone to mislead investors. There are two metrics often overlooked by Western investors that are helpful in judging whether a company is shaky or an outright fraud: Related Party Transactions (RPT) and what I call “State Connections.”
South China Morning Post
Monday, 20 January, 2014
Andrew Collier and Sara Hsu say a study of loans to China’s SMEs shows their considerable reliance on the shadow banking system, raising their risk exposure to any liquidity crunch.
SME Weakness – SCMP
South China Morning Post
A China crash in the making?
Tuesday, 23 July, 2013, 12:00am Business › Economy
‘Financial pressure on local governments is only likely to build’
President Xi Jinping has ambitious plans to reform the economy. Ending the land grab among local governments should be top of his list.
The country is experiencing a tug of war between military dominance and a more open democracy.
By Andrew Collier
December 23, 2013
Myanmar is facing a stark choice – open the doors to the rule of law or slide into Chinesestyle state capitalism run by the military.
1/17/14 China’s shadow banking tug of war | East Asia Forum
Sara Hsu, State University of New York, and Andrew Collier, Orient Capital Research
The party is over for Chinese banks, who have for the last few years enjoyed record profits. Since the end of 2008, the Chinese leadership’s desperate bid to keep the wheels of growth turning has let a flood of credit into the banking system……
The liabilities of China’s shadow banking system are unknown and uncontrolled
By ANDREW COLLIER