China’s War on Shadow Banking Can’t Last Forever
Beijing has been willing to stomach defaults in the private sector. Now even state-linked firms are looking vulnerable.
Out from the shadows and into the red.
Photographer: Golden_Brown/Getty Images
Cause and effect. Action, reaction. As China cracks down on shadow finance, private companies and state giants alike are learning that the karmic wheel of money can come to a screeching halt.
In April 2018, China unveiled far-reaching rules for its financial industry as part of an effort to curb risk. Banks were asked to spin off their wealth-management arms, which had helped funnel credit to an overburdened private sector, and stick to traditional, boring (read: low-yielding) loan books. They were given three years to adopt the new rules, ending in December 2020.