Singapore, August 20, 2018 -- Moody's Investors Service says that shadow banking activity in China
(A1 stable) continues to contract, with shadow banking assets as
a share of GDP dropping to around 73% at the end of June 2018 from
79% at the end of 2017 and the peak of 87% at the end of
2016.
In absolute terms, shadow banking assets fell by RMB2.7 trillion
in the first six months of 2018 to RMB62.9 trillion.
"We expect the contraction in shadow banking assets to moderate
in the rest of 2018, as regulators are taking a more gradualist
approach in response to slower domestic credit growth and a more challenging
external environment," says Michael Taylor, a Moody's
Managing Director and Chief Credit Officer for Asia Pacific.
Moody's explains this has been reflected by the regulatory efforts
to increase banks' lending capacity and their investments in corporate
bonds, while regulations governing broad asset management businesses
and banks' wealth management products are being applied more leniently.
Moody's conclusions are included in its just-released "Quarterly
China Shadow Banking Monitor". The publication draws on publicly
available data sources to provide an overview of trends and developments
in this important component of the Chinese financial system.
"Overall credit growth measured by our adjusted total social financing
(TSF) series continued to slow in the second quarter of 2018, driven
by a contraction in core shadow banking activities including entrusted
loans, trust loans, and undiscounted bankers' acceptances.
In consequence, leverage -- measured by TSF/GDP -- was
flat in Q2.", says George Xu, a Moody's
Analyst.
"Formal bank lending dominated the new supply of credit in 1H 2018,
but banks remain reluctant to lend to marginal corporate borrowers with
weak credit fundamentals that previously had relied on shadow finance
-- thus raising refinancing risk," adds Xu.
Moody's report points out that corporate bond yield spreads have
widened for weaker issuers with lower domestic credit ratings, while
the number of loss-making private industrial enterprises is well
above the level evident a year ago.
Amid tight credit conditions, cancellations of proposed onshore
corporate bonds have also increased substantially.
More than 400 proposed corporate bonds were cancelled or delayed in the
first six months of 2018, a five-year high. And although
borrowers -- in particular Chinese property developers -- have
been tapping the offshore markets, financing conditions in global
markets are also becoming tighter.
Nevertheless, there are some signs of a relaxation in the tight
onshore credit conditions.
Specifically, in July, the Politburo -- a key government
body -- stressed that it would use more accommodative fiscal
and financial policies to support economic growth. Interbank liquidity
improved significantly in the second quarter as the central bank gradually
shifted its monetary policy stance towards an easing bias.
"However, we believe that despite this recent relaxation in
policy implementation and efforts to ease credit conditions, the
overall policy objectives of containing financial risk and deleveraging
remain intact." adds Taylor.
The report may also be found through Moody's topic page "China's trade-off:
Deleveraging and stability", available at http://www.moodys.com/chinarebalancing.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's trade-off include:
• Rated non-financial companies -- China: More
companies are likely to be affected as trade dispute with US escalates
• Property & casualty insurers -- China: Regulatory
focus to curb aggressive risk-taking underpins stable outlook
• Property -- China: Rated developers to face high refinancing
needs over the next 12 months
• Inside China: July 2018
• Government of China: Easing poses limited fiscal risk,
but suggests policy trade-offs are starting to bite
• Mass transit sector -- China: China's new policy
on metro construction is positive for sector development
• Auto ABS -- China: Auto lease ABS transactions face
incremental risks compared to auto loan deals
• Government of China -- A1 stable: Annual credit analysis
• Property -- China: Rated high-yield developers'
liquidity remains tight
• Renminbi Bonds Monitor: June 2018
Subscribers can read the full report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1137069
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Michael Taylor
MD-CCO APAC
Credit Strategy and Standards
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Jing Xu
Analyst
Credit Strategy and Standards
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077