China has requested important data on off-balance-sheet assets and liabilities from several of its major banks. The request is part of a new security strategy in response to the country’s growing shadow banking industry.
Over the last decade, China’s shadow banking industry – a large network of lenders that are not traditional banks – has grown immensely. In response, the government has taken several steps including introducing private banks and stepping up many of its key banking security measures.
Banks have been asked to provide 12 important indicators to the government. The request is designed to increase transparency in the banking sector after a series of scandals and concern over rising bad debts that could threaten China’s slowing economic growth.
Of China’s 19 publicly listed banks, 12 will be required to hand over data viewed as relevant by the government. The Chinese government has stated that its financial disclosure requirements are compliant with the Basel Committee regulations.
Over the last two decades, China’s major banks have been heavily involved in the country’s record-setting economic growth. Banks have lent massive amounts of money in order to sustain the country’s incredible growth rate, leading several economists to express concerns about unproductive, inefficient investments.
Economists and finance industry experts believe that many Chinese banks could struggle to recover loans made out to businesses. An increase in defaults amongst Chinese businesses could hurt both the country’s financial services sector and its economy as a whole.
Officially, bad loans make up just 1% of total lending activity in China, giving it one of the lowest default rates in East Asia. However, some financial analysts believe a series of restructuring tactics have been used to keep China’s reported bad loan rate artificially low and encourage investment in its economy.
