China banking expert and speaker, Joe Zhang, opined that “If China is really worried about shadow banking, there is a neat solution: turn off the credit tap. Beijing must deal with shadow banking head-on rather than diverting energy to tangential matters such as regulation and deposit insurance.” Read more about it in his SCMP article…
China’s shadow banking is opaque, huge and fast-growing. In the past year, it has managed to cause two interbank crises, a few small-scale bank runs and several high-profile defaults and near-defaults of bonds.
This has all proven to be enough fun for the government, which in recent weeks has signalled a two-pronged response: tighten regulation and introduce a deposit insurance scheme. Unfortunately, both plans are misguided, in my view.[…]
Now a very un-Chinese approach is needed urgently. The banks must learn to downsize their loan portfolios – or at least slow the growth of them – to meet their capital ratios.[…]
None of the troubles in the mainland’s banking industry today is due to credit tightening, which is not in the Chinese government’s vocabulary. On the contrary, it is all due to excessive credit expansion.[…]
The rapid growth of credit naturally leads to lower standards, diminishing returns and rising bad loans. That’s the reality in China today.
The government must come out of denial and deal with the issue head-on, rather than diverting energy to tangential matters such as regulation, deposit insurance and preferred shares.
Read the entire article here…
Joe Zhang is the Chairman of Slow Bull Capital based in Hong Kong, and also author of “Inside China’s Shadow Banking: The Next Subprime Crisis” and 避開股市的地雷。Zhang was Chairman of Wansui Micro Credit Company in Guangzhou, China, from 2011 to 2012, . He was named “Microcredit Person of the Year” in January 2012 by the Microcredit Association of China.
He started Slow Bull Capital in 2012. Before starting his own business, Zhang worked at investment banks. He was Deputy Head of China Investment Banking at UBS between 2008-11. From 1999 to 2006, Joe was co-head and head of China Research at UBS Securities Asia Limited. Prior to this, Mr. Zhang worked at the People’s Bank of China between 1986 and 1989. Zhang was chief operating officer of Shenzhen Investment (604 HK), a company listed on the Hong Kong Stock Exchange, between 2006-08.