While we wait for something to happen .. anything … (pleeeease ….)
Meet China’s Biggest Shadow Bank
Shadow banks in China come in a variety of forms and guises. The term is applied to everything from trust companies and wealth management products to pawnshops and underground lenders. What surprising is that China’s biggest shadow bank is actually a creation of the central government and receives billions in financing directly from the banks. Even more interesting, this shadow bank recently pulled off a successful international IPO where it raised billions of dollars.
First, let’s deal with the terminology. The “shadow” in shadow banking doesn’t imply nefarious doings, although it frequently involves a bit of regulatory arbitrage. At the most basic level, shadow banking is borrowing funds and extending credit outside of normal banking structures.
- Cinda Asset Management Company, a creation of the Ministry of Finance (MoF) and the beneficiary of a recent 2.5 billion U.S. dollar IPO in Hong Kong.
- In terms of total assets, Cinda is more than 15 times as large as any of the country’s trust companies
- Cinda was one of the four AMC’s created by the central government to bailout the banking sector in the 1990s.
- The normal business of a distressed asset management company (AMC) is not shadow banking. It involves purchasing troubled loans at a discount and trying to collect a higher amount from the debtors.
- Over the last three and a half years, Cinda’s business has diverged from this model
An interesting, educational read.
