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Off-Balance Sheet Lending Pumps Up Default Risk: China Credit

Chinese banks helped arrange 320 billion yuan ($49.5 billion) of loans between companies in the first quarter that weren’t recorded in the lenders’ balance sheets, raising the risk on their bonds to a two-year high.

While global financial regulators are requiring more transparency and the People’s Bank of China restricts credit to cool inflation, lenders have increased the off-balance sheet loans by 110 percent, central bank data show. Credit-default swaps on Bank of China Ltd. are on course for their biggest monthly rise since October 2008 and are the most expensive since May 2009, according to data compiled by Bloomberg.