Analysis-China trust deficit: crisis spurs shadow banking policy response calls
By Summer Zhen and Laura Matthews
HONG KONG/NEW YORK (Reuters) — Chinese fears of a spillover from missed payments on some shadow banking linked trust products and worsening consumer sentiment are expected to hasten a policy response to revive the country's cash-starved property sector.
Concerns about the outsized exposure of China's $3 trillion shadow banking sector, roughly the size of Britain's economy, to property developers and the wider economy, have grown over the past year as the sector lurched from one crisis to another.
Zhongrong International Trust Co, which traditionally had sizable real estate exposure, has recently missed repayments on some investment products, fuelling contagion fears.
Trust firms operate outside many of the rules governing commercial banks and mainly channel the proceeds of wealth products sold by banks to real estate developers, other sectors, and even some retail investors.
Barclays (LON:BARC) said in a note that regulators were likely to step in if the market environment deteriorates significantly, and measures used by China in the past to deal with spiking financial volatility have included liquidity injections.
«The risk of a systemic shock to the Chinese financial system is not great, but the downward pressure on the economy will intensify,» said Yan Wang, chief emerging markets and China strategist at Alpine Macro.
«These issues are all related, thus the contagion is already happening, and the risk of further spread is material. The government needs to act promptly and aggressively to contain the risk,» he added.
Beijing took a step in that direction on Tuesday by cutting key policy rates after a broad array of data highlighted intensifying pressure on the economy, mainly from the
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