Moody's: China's shadow banking activity expands briskly; credit growth outpaces nominal GDP

The US-based ratings agency, Moody’s Investor Service, published its latest quarterly review on the Chinese shadow banking system on Thursday.

Key Quotes:

“Moody's Investors Service says that overall shadow banking activity in China (Aa3 negative) expanded briskly during H1 2016.”

"We estimate that China's shadow banking sector grew 19% in H1 2016 on an annualized basis to reach RMB58 trillion, equivalent to more than 80% of GDP." 

“The pace of growth slowed compared to the previous year, but that activity continues to be propelled by the issuance of wealth management products (WMPs), which are coming under increasing regulatory scrutiny.”

“Economy-wide leverage continues to increase. In particular, total social financing (TSF), a measure of broad credit, has risen to an estimated 220% of GDP from 206% at end-2015.”

“Credit flows are being sustained by bank lending, especially mortgage loans, and a revival in corporate bond issuance. By contrast, the growth of shadow banking components included in TSF ("core" components) remain subdued.”