Leading experts on shadow banking and overcapacity Go back »
2013-08-30 | Beijing
Is China’s economy on the verge of collapse? And how big of a threat this mean to China’s future economic growth?
To contribute to the launch of Position Paper and Brussels Circuit Briefing Notes, European Union Chamber of Commerce invites three leading experts Arthur R Kroeber, managing director of GaveKal Dragonomics, Joerg Wuttke, Chairman of the Business and Industry Advisory Committee to the OECD (BIAC) China and Joe Zhang, author of China's Shadow Banking: The Next Subprime Crisis, to discuss the economic issues China is facing today: Shadow Banking and Overcapacity in Beijing on 29th August.
In panel discussions, the experts shared their unique visions by exploring the topics such as the definition of shadow banking, structure and current debt levels, general sentiment, overcapacity and offered possible remedies:
• Shadow Banking includes both inside and outside the traditional banking zone: approximately 1/2 wealth products, 1/3 trust products and others (micro financing, pawnshops, leasing etc.).
• Wealth management products have grown from 1 trillion to 7 trillion RMB between 2009- 2013 and generated returns of 4-5%. Banks have been using them as a way to bypass lending quotas.
• Private companies in China are clearly earning higher returns than SOEs, yet SOEs are the ones who benefit from the sub-inflation rate bank loans; whereas private companies are increasingly having to go to the Shadow Sector.
• If there is concern about the level and growth in shadow banking (36 trillion RMB, 36% of all loans made in China), then the simple answer is to increase the interest rate.
• Likelihood of financial crisis is small as China as few foreign creditors that would be tempted to pull their money out of China.
• Overcapacity is a big problem but important to recognize that net exports has greatly decreased and that advanced investment in infrastructure in some sector makes sense. Problems are in aluminum, shipbuilding and solar, not enough investment in food and drugs, affordable housing, internet bandwidth as well as smaller airports.
• State Council has announced plans to reduce capacity by 1-10% in 19 different sectors.
• Total debt in China is roughly 200% to GDP broken down into 110% corporate.
• Consensus on future growth is 6+% by all panelists broken down into 0% from labour; 2% capital; and 3%+ total factor productivity (i.e. innovation).
• China’s environmental regulations are some of the toughest in the world.
