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China Needs ‘Shadow’ Banking System Regulator, Daiwa Says

China needs a national regulator to monitor non-bank lending companies that provide smaller companies with a necessary alternative to banks, Daiwa Capital Markets said.

Institutions regulated by local authorities that help finance the country’s entrepreneurs include pawnshops and leasing companies, Sun Mingchun, a Daiwa economist, said at a Bloomberg conference in Hong Kong. More than 80 businessmen in the eastern city of Wenzhou have disappeared, committed suicide or declared bankruptcy to avoid repaying debts to informal lenders, the official Xinhua News Agency reported on Oct. 12.

“Shadow banking is needed but the problem is there aren’t enough regulations,” Sun said. “They need to be regulated by national regulators as local governments mainly focus on boosting their own economic growth without realizing regional lending risks.”

The China Banking Regulatory Commission is seeking to ease concerns about the health of the nation’s banks and the informal lending market, vowing to control risks and stressing that measures already taken by the government are showing results, Chairman Liu Mingkang said earlier this month.

The People’s Bank of China has raised interest rates five times in the past year and restricted lending to cool inflation. Liu said the tighter liquidity has “spawned various shadow banking activities.”

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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