The Need for Liquidity

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“Shadow banking” in China is up 15.7% on-year in the first three quarters of 2013. “Shadow banks” perform similar functions to banks, but aren’t subject to the same oversight. In June, right before the first-half reporting period, the People’s Bank of China raised interest rates, startling those lenders who may have been a bit overextended.

As Chinese banks come out of the not-so-distant past and become more commercially oriented, their reserves have fallen. To make up for these shortfalls, reliance on borrowing and lending has increased. The Big Four Chinese banks have access to the best borrowers and large depositor bases; it’s the small and midsize banks that pose risks. Some banks are using crafty techniques to disguise loans to subpar borrowers. Without access to high assurance sources of revenue, small and midsize banks need to turn to riskier, higher yielding options and simply rely on borrowing for liquidity. With monetary policy likely to get tighter ensuring sufficient liquidity is a concern.
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One Response to The Need for Liquidity

  1. Shadow Banks only add to the suspicious view many westerners have about doing business in China. Their increase will only increase the hesitation for international businessmen and women to enter into the Chinese markets. Without the proper oversight it is much easier to falsify documents, etc.