The challenges of transitioning away from shadow banking continue to loom large, leading Chinese think tanks to recommend regulators to delay the sweeping rules for asset management reform by another two years.
Despite ambitions to clean up risky off-balance-sheet shadow banking assets, reforms have faced pushback since asset management rules were introduced in 2018.
And now, more delays could be underway as a recent report by China Wealth Management 50 Forum and the National Institute of Financial Research of Tsinghua University suggested extending the deadline to 2022. The report said that financial firms should reduce their off-balance-sheet wealth management products – also known as WMPs, a popular vehicle for shadow banking assets – by at least 30 percent each year before reaching zero by 2022-end.
No More Extensions
The original deadline was set at 2020-end and the think tanks in the report underlined that no more extensions should follow. The report also recommended more combination of powers between the different regulatory bodies overseeing China’s $15 trillion asset management industry.
In addition, the report also suggests the relaxation of rules on granting securities licenses to banks, trusts and insurers to fill market demand.
Banking Risks
The reports to further relax the unwinding of shadow banking assets by two years coincides with ongoing concerns about the health of China’s banking system. Recently, the world’s second-largest economy has been facing a series of bank bailouts and bank runs which subsequently led regulators to impose domestic controls on cash withdrawals and publicly name «illegal shareholders» of firms threatening financial stability.
As of 2019-end, PwC estimated that Chinese banks held $1.5 trillion of bad debt and S&P forecast predicted nearly another $500 billion in non-performing assets due to the coronavirus outbreak.
