#4.2 Will China face a banking crisis? Part 2

chinaeconomypodcast.com Part 2 of our episode on the Chinese banking system. We have seen in the first part that the level bad debt (NPL) in the Chinese banking sector has increased in later years. The Chinese NPL level is actually low by international comparison. However, this is due to a large extent to the differences in accounting standards that tend to underestimate NPL level in China. Another risk measurement method indicates that the level of risk in the sector is actually high. In parallel of the increase in risk, the profit in the banking sector has decreased. These evolutions are due to the slowdown of industrial activity and to the increase in competition linked to the interest rate liberalization and to the development of money market funds. While we are still waiting for my bank counselor let me answer the following questions:

How did banks’ exposure to shadow banking evolve?
What is the government’s plan for the banking sector and what effects can we expect?
Reading suggestions:

China Economy Watch by the Peterson Institute for International Economics where you will be able to read pieces by Nicolas Lardy, my personal hero

Michael Pettis’ blog from Beijing University and the Carnegie Endowment

Andrew Batson’s blog on China, books, economics, jazz, history, et cetera by the Research Director of Gavekal Dragonomics

Bulletin Economique Chine on Chinese economic current affairs in French by the French Treasury