Privatizing credit in China – Part 2

CHINA ADVISORY - Report 22 Mar 2019 by Andrew Collier

​We have been arguing that China is increasingly privatizing credit to avoid increasing official state debt. This will have several outcomes in terms of future credit flows from the banks and shadow banks. Recent data on land sales, a key source of revenue for local governments, and on non-performing loans, reinforces this trend, which we will discuss in detail. These policies are likely to lead to several outcomes:

1) Rising private credit. Growing forms of private credit in various guises, including securitization and off-balance sheet financial products.
2) Private NPL resolution. An increase in private participation in NPL resolution.
3) Monetization of land. Policies to assist local governments to monetize their one prime asset, land.
4) Stable property sector. Keeping the property market “stable,” which, in essence, means to continue the flow of credit to this sector through mortgages and other means.

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