NYT on ICBC’s critique of WMP’s:
Credit has been expanding swiftly in the Chinese economy, as the government has resorted to heavy stimulus to prevent the economy from slowing further. The Chinese economy expanded 6.7% last year. But to achieve that, Chinese financial regulators allowed total outstanding credit to expand by the equivalent of about 15%
much of the lending appears to represent a speculative frenzy, often involving residential real estate, that has become of increasing concern to some Chinese officials, bankers and economists. Real estate prices in large and medium-size cities climbed 12% in the 12 months that ended in February
Some kinds of shadow banking have seen spectacular growth, like entrusted loans. Entrusted loans are loans from one company to another, usually done through a bank to get around a ban on Chinese companies lending directly to each other. These loans — which are also kept off the books of banks — jumped 20% in the 12 months through the end of January, and now account for 9% of overall credit in China
many smaller banks rely more heavily on the sale of wealth management products. Because banks usually keep those obligations off their books, they have greater flexibility to lend to more speculative projects and use the proceeds to pay higher interest to investors — provided that the more speculative borrowers repay their loans.
It’s been about a year since we last noted the WMP’s and their asset bubbles. The Day of Doom always seems right around the corner. Fortunately, the corner keeps moving. At least so far.