The Zhongrong shadow bank had been on the verge of a crisis for a foreseeable amount of time, though recently the involvement of two Chinese state-owned financial firms in their management and operations sectors may have started limiting the risks the shadow bank had been accumulating. However, this has done little to ease the common concerns of investors for they have had a sizable amount of missed payments on a large amount of trust products since late July.
This has led to rising fears that the Chinese financial system may be on a dangerous path because of the property sector crisis. To ease tensions Zhongrong said in a statement late on Friday "it had signed an agreement with Citic Trust and CCB Trust - the shadow banking arms of two state-owned firms Citic Group and China Construction Bank - for so-called "entrusted management services".
These kinds of practices have been increasing since 2017 by the Chinese authorities to decrease risks attributed to shadow banks. There are many concerns revolving around the practices involved with the banks themselves including "their exposure to assets accumulated through opaque fundraising channels". But with the help of Citic Trust and CCB Trust, they're hoping to come up with a repayment plan to compensate for the missed payments. Though hopes are not high for investors with the bank.
Article:
https://www.reuters.com/world/china/chinese-state-firms-help-troubled-shadow-bank-does-little-address-investor-2023-09-18/
I hope that they can star paying for the missed payment that have been accumulating since July with help from this new management service they have entrusted to work with them. I am assuming that this management team will give the investors a since of peace that they will get the funds that belong to them (but the way you made it sound, I think that this must be a cycle for the Chinese financial systems.
ReplyDeleteI also have never heard of shadow banks before this and will have to do my own research on them to better understand what exactly they are!
I also have never heard the term shadow bank before. This does seem like they are not the best though. I am glad that they are figuring out a way to combat these banks. Hopefully these actions have the outcome that China is looking for.
ReplyDeleteThe "opaque fundraising trails" seem a bit sketchy as it sounds like a lot of uncertainty. Hopefully the two big trusts can keep China out of a potential economic crisis.
ReplyDeleteThis topic of "shadow baking" is completely new to me as my classmates said above. I had to do some preliminary research after reading this to try and get a better understanding of them. The concept, no pun intended, seems a bit shady but then again banking as a whole is a gray area in my opinion.
ReplyDeleteRisk management within the financial system is complex, as seen by Zhongrong's ongoing dilemma. A collaboration with state-owned financial firms is a step toward stability, but preventing a financial crisis will require clear repayment plans and greater transparency.
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