The continued regulatory reform in China’s ‘shadow financing’ system supports the development of a healthier financial system that includes reliable alternative lending channels outside the traditional banking system, says Fitch Ratings.
Fitch nonetheless expects asset quality in shadow banking to deteriorate further amid increased risk aversion towards weak credits and the appetite to recognize asset impairments. The latest datapoint shows risky assets within assets under management by trust companies reached a high of 3% in 1Q20.
Tightened regulations have contributed to a much-needed slowdown in non-bank credit intermediation, and Fitch expects growth at a more managed pace.
Relative to GDP, China’s ‘narrow measure shadow financing’ sector declined to a level last seen in 2014, and we expect a further fall in 2021 as asset managers exit their non-compliant products to meet the end-2021 deadline as stipulated under the asset-management rules.
