The global market is not too confident about China’s economy these days. Amid stock market tumbles and currency devaluation, China is experiencing a slowdown in economic growth. The situation has complex ramifications for business players in the market and among them is the emergence of shadow lending.
China has been encouraging its state-run banks to up lending to SMEs, but access to traditional loans remains low. New reports from Reuters, published Sunday (Aug. 16), reveal that even as regulatory threats loom over the unregulated shadow finance sector, the nation is actually fueling such lending practices.
According to Reuters, local government funding vehicles are ramping up lending for local businesses, though the loans are technically off the books. In addition, reports said that federal officials are allowing alternative lending marketplaces to flourish.
“Their return is an admission by Beijing that commercial banks alone cannot fund a badly needed revival in investment,” Reuters stated about the reemergence of local government financing, citing Moody’s data that showed such funding has quadrupled between February and July of this year.
Analysts told reporters that the rise in shadow lending is part of China’s reaction to a slowing economy. Governments and state-run banks are underwriting new bonds worth $313 billion, reports said, to fund local government debt. Plus, analysts estimate that China has lent several billions more dollars to local institutions for the purpose of buying up stock and supporting the stock markets.
Reuters added that while traditional bank lending has picked up some, government bonds have taken over as a dominating source of financing for local governments. But reports also said that SMEs still struggle to gain financing from banks, which gear their funding towards state-run businesses, and have once again begun depending on alternative lenders, largely unregulated, to access working capital.
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