China’s biggest banking problem has long been a lack of risk taking. Bankers have lavished loans on state-owned enterprises, believing the government will back them up, and shied away from the hurly-burly of the private sector.
But a tipping point of sorts has been reached this year, showing risk is on the rise in the Chinese banking sector – for the better and for the worse.
Since July, for the first time ever on a consistent basis, non-bank institutions have been as big a source of financing as banks themselves. That has ensured that credit growth in China has remained strong even though the government has put a cap on lending by banks. The ratio of total credit-to-gross domestic product in China has risen this year to more than 190 per cent from roughly 175 per cent in 2010 and 2011.