Notes from Beijing: Tighter control of the banks

CHINA ADVISORY - Report 20 Apr 2018 by Andrew Collier

After a week in Beijing we learned that the shift to new regulatory management, coupled with solidification of Xi Jinping’s power, is resulting in tighter control of China’s banks. There is a systematic effort to reduce reliance on off-balance sheet credit obligations in the banks that is working. The government is focusing on unrecognized off-balance sheet liabilities. “Invisible debt is the biggest risk to the financial system,” one researcher affiliated with the State Council told us. However, there remains a fundamental conflict between risk reduction and credit access for the local economy, which includes governments, state firms, and private firms. While the banks are reducing risks, others are stepping in. The credit is merely shifting from smaller banks to households and larger banks.

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