China data delay leaves FSB in the dark on riskiest shadow banking assets

HONG KONG (Reuters) - The Group of 20 (G20) economies’ financial risk monitoring agency has criticized Beijing for being slow in providing key financial data from China, leading to the delay in a report on the risks the world faces from shadow banking.

China failed to provide data to the Financial Stability Board (FSB) in time for its annual “Global Shadow Banking Monitoring Report”, the FSB said on Wednesday.

The People’s Bank of China and the China Banking Regulatory Commission (CBRC) were not immediately available for comment.

China’s top leadership has itself identified curtailing financial risks as a top priority this year after overall leverage in the economy rose sharply, but its tighter control of bank lending appears to be pushing borrowers back to alternative sources of funding, including the opaque, often loosely regulated shadow banking sector.

China’s $7.7 trillion shadow banking sector, which includes non-bank forms of credit such as trusts and wealth management products, is dwarfed by that of the United States and Europe, but the speed at which it has expanded has become a concern to regulators at home and abroad worried about hidden systemic risk.

The FSB, which coordinates financial regulation for the G20, said a delay in receiving the Chinese financial sector data meant it was unable to provide a measure of shadow banking activities in China that could pose a threat to stability.

The FSB launched the annual report in the wake of the 2007-2009 global financial crisis to monitor risks arising from non-bank financial activities and to shape regulatory policy.

“The late submission of Chinese data delayed the publication of this Report, and did not allow enough time to complete the assessment of entities in China as part of the shadow banking system,” the FSB said in the report.

“Chinese authorities have committed to making improvements to their internal processes related to this exercise, and are expected to contribute fully to the 2017 monitoring exercise.”


The FSB report shows China’s overall financial sector assets - including banks, insurers, central bank, and pension funds - grew 11 percent during 2015 to reach $89.9 trillion.

This included $7.7 trillion in assets held by “other financial intermediaries”, a broad measure of shadow banking that includes institutions such as trusts, money market funds, hedge funds and money lenders.

China’s broad shadow banking sector ranked fourth globally after the euro area, the United States and United Kingdom, but in terms of growth was second only to Argentina’s, jumping 31 percent year on year.

Because China submitted its data late, however, the FSB did not have time to perform an analysis of a narrower subset of shadow banking entities and activities to identify the key risks to stability, which is the focus of the report.

This includes identifying entities that increase system-wide leverage or carry liquidity risks, such as funds that may be vulnerable to runs, or lending based on short-term funding.

The rebuke is an indication of the FSB’s frustration with China, said an analyst at a large international bank who asked not be named.

“I’d be annoyed too; it’s such a big market, and they haven’t provided the data,” said the analyst, adding that it was 2015 data the FSB asked for.

“(The data) may just have been very difficult to gather, but they’re using 2015 numbers,” he said the analyst. “China’s not that opaque; they could have provided it.”

Outside China, the FSB said its “narrow” measure of the shadow banking activities that could pose a threat to stability rose 3.2 percent to $34.2 trillion in 2015 from the prior year.

Data quality has long been a problem for regulators in assessing the size and risks of the shadow banking sector globally, and not all countries are covered by the report. But the missing China analysis comes amid rising concerns over systemic risk created by interconnections between entities in the world’s second-largest economy.

“Interconnectedness between mid and small sized banks and the shadow banking sector continues to grow, increasing the risk that funding structures could become fragile if confronted with a negative liquidity shock,” Michael Taylor, a managing director at Moody’s said in a note this week.

The FSB has previously warned that China needed to simplify its complex regulatory system, which comprises multiple agencies overseeing banks, stock markets, funds and capital flows, in order to increase transparency and reduce risks. (here)

Reporting by Michelle Price; Additional reporting by Engen Tham in Shanghai and Shu Zhang in Beijing; Editing by Will Waterman