HSBC Says China’s Shadow Banking Risks Manageable

The risks within China’s shadow banking sector can be controlled, says Stuart Gulliver, CEO and chairman of HSBC Holdings Plc, at a forum today in Hong Kong.

"China faces other difficult choice, not the least from shadow banking," Gulliver says. "(But) we believe it’s ultimately manageable."

The total assets in the Chinese shadow banking sector is around RMB46 trillion, according to JPMorgan Chase estimates. Chinese brokerage firm Gao Hua Securities estimates it to be around RMB28.5 trillion.

That means the ratio of shadow banking to total bank assets in China is around 30%, comfortably low compared to 170% in the U.S. and 150% in the Netherlands, JPMorgan’s analysis shows.

Recent default scares of a couple of Chinese trust products have sent ripples through the broader market. But Gulliver says the potential for losses are also limited here.

"Even at the trust sector, the default risk is fringed really to the trust companies that lack large asset sizes and strong state government support, which in our analysis only amounts to about 9% of (total) trust assets," he says.

Assets under management by trust companies more than tripled from RMB3.0 trillion at the end of 2012 to RMB10.1 trillion at the end of September 2013, exceeding the RMB8.1 trillion of total assets held by China’s insurance companies, according to estimates by Nomura.

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