With China’s growth comfortably back where the government wishes it to be, at 7.5 per cent, the markets have reverted to their usual schizophrenia. They rejoice that the engine of growth for many Asian and Latin American countries is back on track. Simultaneously, though, they fret that growth bought by a return to easier credit policies will lead to deeper troubles in China. Fears of the disruption accompanying any slowdown have been replaced by worries of the consequences of excessive leverage.
The world has come to depend on a high rate of growth in China, which depends in turn on the Chinese banks doing their bit. The major state-owned banks, which include Industrial & Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China, though listed, are still in large part the instruments of policy. At the same time they are becoming more commercial, developing less transparent, more shadowy arms to escape regulations that limit their profitability.
As China’s financial system becomes more sophisticated, it has also grown more opaque, adding to concerns about the health of the financial system. Today, about 20 per cent of total banking assets, or Rmb30tn worth of loans, lie in the shadow banking system, according to estimates from ANZ.