Amid a spate of default headlines, China's shadow banking sector is slowing, but loans overall continue to grow amid a delicate policy dance between economic growth and tightening credit.
"On the one hand, (regulators) try to control and taper down on the China shadow banking system side and on the other hand, they need to pump liquidity into the system to ensure the rates do not spike up too drastically," said David Poh, regional head of asset allocation at Societe Generale private banking. "This is like a fine balance between the two."
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The latest loan data seem to suggest fresh caution on lending. Total credit formation slipped to a four-month low of 938.7 billion yuan (around $153 billion) in February, up 17.1 percent on year, but slower than January's 17.4 percent rise, hurt by slowing property sales and as shadow lending slipped. January typically sees higher lending activity, in part due to the Lunar New Year holiday distortion.
Combined January and February shadow-banking credit fell 11.3 percent on year, according to data from Nomura. The decline followed news of several near and partial defaults on shadow banking products.