Shannon Brandao
From the article: "CNN Business [excerpt]: #Moody’s surprise downgrade of #China’s credit outlook this week has reinforced concerns that the crisis in the country’s #realestate market is spilling over into the wider #economy.
While the risk of #contagion — particularly via losses at so-called #shadowbanks — is growing, analysts say China is not experiencing a 'Lehman moment,' a reference to the 2008 real-estate linked collapse of the bank that marked a major worsening of the global financial crisis."
"'The current #property downturn has been the biggest drag on the Chinese economy over the past couple years, and also the biggest tail risk at this moment,' [says Larry Hu, chief China economist at Macquarie Group.]"
"Of particular concern is the spillover effect on the '#shadowbanking sector,' a mysterious and enormous part of China’s financial landscape.
The industry, worth about $3 trillion at its narrowest definition and as much as $12 trillion if asset management products and consumers loans are included, has come under the spotlight in recent months because two major players have failed to make payments they owe to investors. Both of them have significant exposure to the property market.
Zhongzhi Enterprise Group, one of the country’s largest financial conglomerates, declared itself insolvent last month after missing payments on dozens of investment products. The company is now at the center of a criminal investigation by the police.
Two weeks after Zhongzhi revealed its financial troubles, China’s state media reported that Wanxiang Trust, an investment and asset management firm in Hangzhou, had delayed payments worth several hundred million dollars on a number of investment products.
Shadow banking "meltdown"
The problems at the two investment companies have [fueled] fears about the risk of financial contagion from the worsening property market downturn on investors who did not directly purchase homes. Huge developers such as Evergrande and Country Garden have defaulted on their debt.
'Shadow banking generally represented a significant source of #capital for real estate developers, and the implosion of private developers is now rocking the shadow banking sector,' said Brock Silvers, chief investment officer for Kaiyuan Capital in Hong Kong.
Shadow banking refers to financial activity that takes place outside the traditional #banking system.
In the West, it often involves lending by private equity firms or hedge funds. In China, it involves different forms of financing activity, some of which include banks. Common forms of shadow banking include the use of wealth management products, trust products or entrusted loans."
#news #business