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Flash: China tightens shadow banking system - Nomura

FXstreet.com (Barcelona) - Nomura economist Zhiwei Zhang notes that according to 21st Century Economic News, the China Banking Regulatory Commission (CBRC) recently issued new guidelines to strengthen the regulation of bill financing activities.

He sees that bill financing is a typical shadow banking channel through which banks circumvent loan quotas and lend to corporates. Through the first four months of 2013, Zhang sees that bill financing amounted to RMB891bn, or 11% of total social financing. Its year on-year growth was 242% during this period, which is significant considering total social financing grew by only 63% y-o-y.

Further, he adds that the CBRC's action to tighten its control on bill financing is consistent with his view and helps to explain why the 7-day interbank repo rate recently rose to about 4% from 3%. He adds, “It also reinforces our view that the monetary policy stance has tightened and total social financing peaked in Q1 and should drop in Q2. We continue to expect GDP growth to slow to 7.5% in Q2 and 7.3% in H2, with PMI declining to 49 on 1 June.”

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