Wednesday, 17 April 2013

Penny dropping?

Thanks to FMG magnate Andrew Forrest, the Australian media has been abuzz with an enhanced sense of importance, reporting from the sidelines on the political-investment shindig the miner organised for China and Australia's business and political elite in Hainan, the "Boao Forum".

More interestingly was reports from another regional conference and comments from RBA Governor Glenn Stevens:

...RBA Governor Glenn Stevens has some concerns about China’s “shadow banking” system. He poses questions about the role of non-bank entities in the Middle Kingdom. (here)

The linked Crikey article gives a good run down of the shadow banking problem in China and quotes from Fitch analyst Charlene Chu, who has led the pack in rating the Chinese bank sector in recent years:

“The [Chinese] banking sector is significantly exposed to shadow banking. We could see an asset quality problem in the financial sector in fairly sizable magnitude within the next few years.”

Actually I disagree with Charlene on one point.  The asset quality problem is happening now. A senior auditor warned China's local government debt (to which the banking system is tied) is "out of control" (here).

And yes Australia is exposed front and centre.  The economy is at risk.

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