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Why China's Shadow Finance Echoes Pre-Crisis U.S.

  • Rhodium Group’s China research head speaks in interview
  • Things that aren’t sustainable will end, says Logan Wright
A man walks inside a residential building complex in Hong Kong, China, on Thursday, July 21, 2016.
Photographer: SeongJoon Cho/Bloomberg

The shadow financing that is fueling China’s economic growth is unsustainable and “eerily similar” to developments in the U.S. before the global financial crisis, says Logan Wright at research firm Rhodium Group.

The nation has at most about 18 months before this funding -- derived largely from wealth-management products offering higher returns on riskier underlying investments -- hits a wall, says Wright, director of China markets strategy for New York-based Rhodium. Banks will then be unable to generate new credit needed to maintain the current pace of economic growth, which is likely to slow to a range of 5 to 5.5 percent for about two years, he says.