Shadow banking in China continues to grow at a time, when the Chinese authorities seek to restrict lending, which is at such high levels that threaten the stability of the financial sector. The shadow banking reached a volume of 69 billion USD in November, which a month earlier was 55 billion USD. The surprising growth might be due to the expectations of continued depreciation of the yuan. This growth can affect trade in CNY in the short term, because of expectations of devaluation of the Chinese currency and increase inflation.
The attempts to limit the shadow banking can exacerbate the problem of leakage of liquidity. The yields on 10-year government bonds rose from 2.74% to 3.24% in late October, which is the highest level for more than a year.
If Chinese regulators begin to restrict shadow banking, it will affect the monetary and capital markets due to the limitation of liquidity.
Strong credit growth is not only due to the shadow financial system. The total social financing, the broadest measure of new funding, reported the greatest increase since March, reaching 1.74 trillion CNY, as in October was 896 billion CNY.
Although the indicator is extremely volatile and sharp his monthly changes are commonplace, as the growth is well above average. The increase of 11.8% yoy was driven by growth in lending to households, which reflects the effect of the restrictions in the property sector, and expansion of shady lending.
It is possible to prove that the growth of shady lending is a temporary phenomenon. The off-balance sheet lending will be transient because of the plans of the Central Bank of China to tighten supervision.
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