Some are preparing for a new global financial crisis due to the enormous “splurge” in Chinese lending and quality of lending in China’s shadow banking industry. This was prompted by two things: when a fund promoted by the Industrial and Commercial Bank of China almost defaulted, and the fact that China has lent around $15 trillion to fund a massive country-wide building spree.
Alarm bells have been ringing across trading floors, and some investors have been looking for a way to hedge against economic collapse in the future. Fears continue to increase as people analyze China’s “over-stretched, over-leveraged banking industry”. Some believe this to be an exaggeration, but the fact still remains that the default risk for China’s banks reached a six-month high last week. Whether these trends are a product of nervous markets or post-2008 wary analysts, only time will tell. Until then, China’s banking industry will be the receiver of much criticism and analysis.