Cracks are showing in China’s shadow banking industry

SHANGHAI (Jan 24): Strains are spreading in China’s US$15 trillion ($19.8 trillion) shadow banking industry as investors pull back from the debt-like savings products that helped drive leverage to dangerous levels.

Most affected are some US$3.8 trillion of so-called trust products, until now the fastest-growing shadow banking segment and a popular way for debt-ridden property developers and local governments to raise funds from millions of ordinary Chinese. In recent weeks, at least two of the products have been forced to delay payments as the market started to freeze up, making it harder to refinance maturing issues with new ones.

"On the one hand you have cash-strapped borrowers scrambling for refinancing; on the other you have cash-rich investors not knowing where to put their money for fear of getting burned,” said James Yang, a sales manager at Shanghai Xiangyi Asset Management Co.

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