Shadow Banking system problem is a temporary small problem in China
China government has reset an economic policy from an export-driven economy to an expansion of domestic demand economy !!
Several mass-media has predicted that the economic-growth(%) of China will be likely to
decelerate after this. China government has predicted that the rate of China's economic growth 2012(last-year) was 7.8%. And its rate of 2013(this year) will become 7.5% at minimum.
But the financial circles of the Western countries has predicted the rate of China's economic growth 2013 will become 6.0% or less than it(In some cases, 3-4%). (the most pessimistic prospect)
The authority of China reported that the rate(%) of China's economic growth January-March was 1.7%(annual rate 7.5%).
But its rate(%) had not been considered a deflation. So, actual economic growth-rate(%) was minus 0.2%. ....has been pointed out by the financial circles of the Western countries.
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Stagnated sales for foreign companies which running a business in China has been continuing in the China-market. The sales of 12 companies among 18 U.S.companies being aggressively advancing China has decreased its sales(profit) less than their predicts(%).
One company in the food restaurant industry decreased 15% than its predict(%) of sales(profit) in the China-market.
Last year, the sales(cell phone) of Apple Inc.in China was a 43% increase from the previous year(2011). This year(2013), its sales decelerated a 14% increasing from the previous year(2012). And in Japan, Under a tendency of a low exchange rate of the yen against Renminbi, the export from Japan to China on May was a 8.3% increase from the previous year(2012).
Its rate(%) of export on June decelerated a 4.8% increase from the previous year(2012).
Both month's economic-growth rate(%) shows that China'economic-growth(%) April-June has rapidly decelerated than January-March.
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The reason of decelerating the economy of China has two reasons.
One is that the export of China -which was a leading-force of China economy- has been sluggish under the world-recession like Europe,etc.
Another is that China government came to an end to invest an enormous sum of a budget
of the infrastructure development which continuing for supporting the economy since the Lehman Brothers bankruptcy in 2008.
After the Lehman Brothers bankruptcy in 2008, China government completed the 10 years infrastructure development within 5 years only.
When continuing to invest an enormous sum of a budget of the infrastructure development in China, the economy was good. But As result of becoming noticeable an excessive infrastructure development and overlapping development plans, China government had to stop the infrastructure development policy.
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China government has continued to announce that the economic growth rate 2013 achieves 7.5%.
For that purpose, the government has announced to carry out a small-scale business stimulus measures.
China government cannot implement a large-scale economic measure after this on the ground that they needs to solve an excessive investment in plant and equipment with stopping to give a big feast for an infrastructure development.
For that reason, China government can implement only a small stimulating policy like an exemption of a sales tax for smaller companies and a simplifying of export procedures unattended with an expansion of a new bubble investment.
China unveils measures to boost economy
China government has been afraid to increase a dissatisfaction and discontent of peoples against the Communist Party of China with increasing the number of unemployed.
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Until 2011, China government had said that"If the economic growth-rate(%) numbers in more than 8%, a social unrest will happen in China. After that, the lower limit of the economic growth-rate(%) changed to 7%.
Even now, the disparity of wealth in China is wide. But generally peoples have been rich by degrees. The number of peoples in the middle-income brackets<$1.7-3.5million> has increased in China. As a result, the lower limit of the economic growth-rate(%) is in the process of changing to 6%.
China's middle class emerges, to spend more
China takes foot delicately off growth turbocharger
There is a forecast analysis that China economy will decelerate with a hard landing.
But its definition is that its economic growth becomes under 6%.
The mass-media in Europe and America has reported that China economy has stopped. But actually China economy ha kept 4-7% economic growth. It is not a stop.
What if China lands hard?
SocGen outlines the scenario
After this, there is a high probability that an economic growth of China falls.
China government doesn't look be in very difficulties. On July, China government announced a policy to forbid to extend a building and establishing for the next five years.
Over the last 5 years, each local government has constructed fine public offices like a palace under giving a big feast for an infrastructure development. As a result, each local government had been provoked people's antipathy.
China bans construction of government buildings for five years
China government is considering to switch an economic policy from the export-oriented growth economic policy to the domestic demand-led economic policy.
Until now, the export-driven economy of China has been supported by cheap labor costs.
The improvement of employment and the increase of income is essential to improve life better for peoples. So, China government has no choice but to approve a rising labor costs in China.
China needs to change from the export-driven economy.
The economic growth(%) of China will become dull to 5-6% by shifting a domestic-demand-oriented economy.
The long game: Why a China slowdown isn't scary
What's happened the Shadow Banking System in China ?
Bolstering up policy by the domestic infrastructure investment for the last 5 years had reached the limits to the field of a financial side of the economy too.
After the Bankruptcy of Lehman Brothers 2008, China government has carry out shoring up an economy for filling a blank of world recession by Infrastructure Development with investing a vast sum of budget into local-governments and Nationally owned companies around China through 4 major national banks.
But these investment caused to expand a real estate bubble in China with making a round as a venture capital.
For that reason, China government tightened the investment into 4 major national banks from 2009.
But 4 major national banks established subsidiary companies for making up for lack of funds and has continued to lend funds which collecting by issuing bonds into Nationally owned companies and local-governments.
After that, this substitute financial system has ballooned in China.
The financial circle of China gave a name of "Shadow Banking System" to this financial system with imitating the name"Shadow Banking System" of USA.
-Four major Banks-
1. Bank of China
2. China Construction Bank
3. Industrial and Commercial Bank of China
4. Agricultural Bank of China
Shadow Banking Threatens China's Economy - but What Is It, Exactly?
After being speculated that FRB's Quantitative easing(QE) will diminish, To make matters worse,
the News about China economy decelerating has increased a fear that a bad-debt of the shadow Banking System in China might increase rapidly. The People's Bank of China came up with an attitude in mid-June that the government does not finance for helping the Shadow banking Syatem.
China's about face with banks eases fears of crisis
Just at the moment, each bank became unwilling to lend and borrow each other in the financial-circle in China. As a result, interbank rate(%) had risen suddenly.
The situation was purveyed as the world news that the financial crisis happened in China at last. But that disturbance was a drastic measure of China government. Several days later, After the People's Bank of China announced that they relieved the financial institutions under going bankrupt, the interbank rate(%) returned to normal rate(%) with suddenly falling. And China authority announced a measure to liberalize a lending rate(%) of each bank as part of a requisite deregulation of interest rates(%) before a liberalization of foreign exchange.
China signals will cut off credit to rebalance economy
It is said that the scale of the Shadow Banking System in China is about $2 trillion.
Its scale is smaller by far than the scale $20-70 trillion of the Shadow Banking System of USA.
The expansion of a deregulation of finance has been a motive power of an economic growth in U.S.A for the last 20 years. As a result, it directly led to the financial crisis.
But the economic growth of China has been consisted of an expansion of a real economy like the manufacturing industry. Therefore, the financial crisis directly does not lead to a recession.
Fitch says China credit bubble unprecedented in modern world history
After the Lehman crisis in 2008, the economy of advanced nations has been hung low over.
China economy has become a leading force of the world economy.
If China economy decelerats, the growth of the world economy will seriously affect with halving its economic growth. China has consumed a large amount of coals and Iron ores amounting to half of the gross demand in the world. And has consumed a large amount of metals like copper ores,etc amounting to 30-40% of the gross demand in the world too.
A substantial deceleration of China economy hits to the economy of the resource exporting countries like Canada, Australia, etc with suddenly decreasing raw materials and energy resources from the world. And furthermore, most major manufacturers in USA, Europe and Japan decreases a profit.
When the economic growth depending on an export, China government has maintained the policy to lower an exchange rate of Renminbi.
But after this, China is likely to approve the revaluation of the Renminbi for falling an import price as the economy changes to a domestic demand-led recovery.
It is pointed out that China government has hoarded up gold-bullions in recent years.
It is analyzed that China government will transfer to a currency system which backed up by gold-bullions after stopping an effectively "dollar peg policy"for Renminbi.
Is China Preparing To Back The Yuan With Gold?
China Is Quietly Becoming Gold Superpower
ADB's report
