China’s Shadow Banking System Boomed in October

The media has finally gentrified China’a massive underground banking system by calling it ‘social finances.’ How quaint?

The shadow banking system in China roared in October, by $69 billion, an indicator that the good times of wanton criminality are back.

The cause for the rise is most likely due to the deleterious condition of the Chinese renminbi and the resurgence in inflation.

Some analysts fear cracking down on thr criminals in China might cause US bond yields to rise. You cannot make this shit up. Redemptions might cause China to sell more Treasuries, which in turn will cause yields to spike and America will suffer under harsh credit conditions.

Clearly, China should just let the social finance scene flourish without interruption.

“Today’s surprising data will likely trigger some regulatory concerns,” David Qu, China economist at Australia & New Zealand Banking Group Ltd, wrote in a note to clients on Wednesday, citing the size and opacity of off-balance sheet lending from trust companies, brokerages, micro-lenders, pawn-shops and even real-estate companies.

Efforts to curtail shadow lending may exacerbate this month’s liquidity squeeze, as the yield on 10-year government bonds shoots up to 3.24 percent from 2.74 percent at the end of October — their highest level in more than a year.

“If Chinese regulators start to restrict shadow banking activities, there may be spillover effects to the bond market due to liquidity tightening,” Qu adds, referring to the prospect that redemptions from wealth-management funds would force asset managers to trim their bond positions.

Total social finance, the broadest measure of new lending, expanded the most since March at 1.74 trillion yuan, up from 896.3 billion yuan in October. While TSF data can be volatile, and there’s typically a month-on-month bounce given the October holidays, the rise was notably above median expectations of 1.1 trillion yuan, according to a Bloomberg survey. The 11.8 percent increase on a year-on-year basis was driven by household lending growth, reflecting how property curbs have yet to kick in, as well as expansion in the shadow-banking sector.

“Seven months after the People’s Daily called time on the credit binge, the data suggest that little progress has been made,” Tom Orlik, analyst at Bloomberg Intelligence, wrote in a note to clients.