It’s always something. According to the Wall St Journal we’re still cleaning up the mess from the massive debt-fueled housing bubble in the US when suddenly we’ve got to deal with Europe’s public finances. We haven’t even gotten started on that one when a third debt debacle starts rumbling, in China.
We all know by now the standard-issue worry about China — too much debt-fueled building too fast, raising the risk of a hard landing. There’s an additional wrinkle to the story, too, one that might be more worrying, as it has a bit of the feel of the subprime mortgage debacle that took down the global economy just a few years ago.
We’re talking about a large, off-balance-sheet world of debt, China’s “shadow banking” system, which has grown to make up about 22% of all new financing in China, Barclays Capital reports. The system is made up partly of bank loans, trust companies that “sell wealth-management products to the public,” Barclays writes, while also doing some lending on the side, along with similar loans using banks as intermediaries. This lending helps finance infrastructure, industrial and commercial projects and real estate. This corner of the market is poorly regulated and opaque, raising worries about what dangers lurk within.
Barclays economists today write that they don’t yet see it as an existential threat — though it poses serious threats:…
Read more at http://blogs.wsj.com/marketbeat/2011/10/25/chinas-shadow-banking-system-the-next-subprime/?mod=WSJ_markets_liveupdate
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