Getting a grip on shadow banking

Over the last five years, there has been a boom in wealth management products and trust business, as the higher interest they offer has attracted more and more individual investors. With the rapid growth, regulators are paying greater attention to the potential risks arising from shadow banking, and tighter controls are likely to be introduced in the near future.

Shadow banking is a relatively new trend in China. In a broad sense it refers to the financial intermediaries, such as trust companies, hedge funds and underground finance sources that are outside traditional banking activities, and to the unregulated activities of regulated institutions, such as the off-balance-sheet lending of banks.

Yan Qinming, assistant to the chairman of the China Banking Regulatory Commission, revealed on Jan 29 that the book balance of wealth management products reached 7.61 trillion yuan ($1.2 trillion) at the end of 2012, up from only 500 billion yuan in 2007. And according to statistics from Wind, a financial database service provider in China, the total assets management scale in trust companies exceed the scale of the insurance industry, reaching 7 trillion yuan at the end of 2012, up from less than 1 trillion yuan in 2007.