China’s slowing non-bank financing growth will help the economy achieve a “soft landing” and reduces concerns about systemic risk, Moody’s Investors Service said in its weekly credit outlook.
Preliminary data released last week from China’s central bank on financing last year suggests an estimated drop in non-bank funding growth to 25 percent from 45 percent the previous year, Moody’s said. That is a credit positive for banks, the ratings company said.
“China’s ability to slow non-bank financing growth to its current pace is helpful to the prospects of a ‘soft landing’ in the economy and a development that diminishes our concerns about systemic risk,” Yvonne Zhang (章怡), a Beijing-based vice president and senior analyst for Moody’s, wrote in the report.
Chinese investors and borrowers have increasingly turned to non-bank products such as trusts, with investors seeking higher returns than bank deposits offer and borrowers looking for financing as China’s government slowed down new lending growth beginning in 2010. Ratings companies, including Moody’s and Fitch Ratings Ltd, said the rise in non-bank lending created added risks to the financial system in part because trusts often invest in assets tied to the real estate market or buy loans that banks want to move off of their balance sheets.
“Although these products are not on banks’ balance sheets, banks play an important role in making the transactions happen,” Zhang wrote.
Growth in China is slowing as the government seeks to curb inflation and rising home prices and refocus the engine of economic growth away from investment toward consumption.