associated press, China, economics, economy, gdp, government policy, housing, housing bubble, jake huneycutt, lending, lending bubble, politics, price controls, shadow banking, state-run banks, subsidies
China could be in for a very hard landing over the next few years. China is still in the very early stages of its real estate crisis and we’re already finding out a lot of particularly damning facts. This recent Associated Press article on China’s so-called “shadow banking” system is particularly insightful:
Here are a few excerpts:
[Shadow lending’s] popularity reflects public desperation for an alternative to China’s banks, which pay low deposit rates that fail to keep up with inflation and channel savings to government companies.
So it’s clear that China’s artificially low interest rates were driving private individuals to make loans at higher interest rates to small businesses and real estate developers. In affect, the shadow banking system acted as sort of vast collection of mini-banks, completely outside of state control.