Chinese BanksJuly 2011
The People’s Bank of China’s (PBOC; the central bank) TSF consists of sevenprimary components: bank loans, undiscounted acceptances, tri‐party entrustedlending, a small portion of trust company lending, domestic corporate bond andequity fundraising, insurance company investment in real estate, and insurancepolicy payouts to households and corporates. Also included is a small “other”category, which largely consists of lending by micro‐lenders (which are excludedfrom system‐wide loan figures) and private equity. Below are details on the mostcomplex items.
Bankers’ acceptance bills refer to undiscounted acceptances, or the gap betweenthe banking system’s off‐balance‐sheet acceptances and on‐balance‐sheetdiscounted bills. When a Chinese bank discounts an acceptance, the moneyextended is considered a form of lending and should be recorded in its loanportfolio. However, as Fitch observed last year, Chinese banks began heavilyoffloading discounted bills in 2010, which has the effect of masking their true creditgrowth and credit exposure. As a result, the gap between acceptances and bills hassoared. This gap is expected to exceed CNY5trn outstanding by end‐June 2011,equivalent to more than an entire year of new bank loans before the global crisis(Figure 3).
Entrusted loans represent tri‐party loans in which entities not legally permitted toextend loans (e.g., corporates) do so by entrusting the money to a bank or financecompany, which then on‐lends the money to the designated borrower. Banks actmerely as transfer agents in such transactions, and take on no direct credit risk.
Trust loans refer to credit extended through a specific type of trust product createdjointly with banks and whose underlying assets consist solely of loans. Issuance ofthese products has plummeted amid stricter regulation. However, many marketparticipants have incorrectly extrapolated this to mean that all trust activity haswaned, when in fact issuance of other trust products remains robust (see
CreditFrom Domestic Trust Companies
03,0006,0009,00012,00015,0002005 2006 2007 2008 2009 2010 Q110 Q1110918273645Loans (LHS) Undiscounted acceptances (LHS)Entrusted loans (LHS) Trust loans (LHS)Insurance, bonds, equity, other (LHS) TSF (RHS)
Total Societal Financing
(CNYbn)Source: PBOC(% of GDP)
Introducing theFitchAdjusted TSF
The creation of the TSF represents an important step forward by the Chineseauthorities in broadening their conceptualisation of financing beyond lending, andprovides data on several activities that previously had been unavailable at thesystem level. However, a number of important items remain excluded, making theTSF too narrow to be used as a solid gauge of total formal and shadow credit.
2004 1,500 1,000 3 4972005 1,960 1,380 0 5802006 2,210 1,720 2 4882007 2,440 1,280 6 1,1542008 3,200 1,900 0 1,3002009 4,100 2,385 18 1,6972010 5,600 1,500 79 4,021Q111 5,900 1,200 77 4,623
Includes commercial acceptances, whileTSF only includes bankers’ acceptances.As a result, the change in this gap differsslightly from that reported in TSF
Rediscounted by the central bankSource: PBOC