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Anjani Trivedi

China’s Hidden Bank Assets Are Emerging from the Shadows

Lenders are being pushed to recognize $1.3 trillion of products sold in racier times. That could prove costly.

It’s what’s below the surface that matters.

It’s what’s below the surface that matters.

Photographer: Felipe Dana/AP

Chinese banks’ books are looking cleaner as soured loans are cleared out. But it’s worth keeping an eye on what’s happening in the shadows.

Over the last year, the country’s lenders wrote off big chunks of non-performing loans – around 3 trillion yuan ($463 billion). A commendable effort. But as the bad loans fall, banks including Bank of China Ltd. and Industrial and Commercial Bank of China Ltd., or ICBC, have been preparing to bring their off-balance sheet activities into the light: impairment provisions on so-called non-loan assets such as wealth management products or WMPs rose by a staggering 128% last year. At China Merchants Bank Co., another large lender, provisions largely due to expected losses from this business segment rose over 65% to 13.6 billion yuan as of March. At ICBC, impairments on such other assets rose to 30.8 billion yuan last year.