Don’t blame China’s shadow banks

Conventional banking is the weak point in China’s financial system, says former CBRC chief Liu Mingkang.
Liu Mingkang
Liu Mingkang

The usually unflappable Fred Hu, founder of Primavera Capital and former Goldman Sachs economist, lost his cool. “Whoever invented the term shadow banking’ should be shot,” he said.

Hu was speaking at a seminar about the risks to China’s financial system and wanted to make the point that shadow banking which he would prefer to call non-banking lending activity’ has a useful and necessary purpose. The term shadow’ is pejorative, whereas shadow banking in China provides savers with the means to earn a return above inflation, Hu argued.

The sharp increase in non-bank lending activity in China brings with it risks, however, and while the central government...

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