China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing

Saturday, September 26, 2015
By Paul Martin

by Tyler Durden
ZeroHedge.com
09/26/2015

Last month, we took a detailed look at what we said could be a multi-trillion yuan black swan.

In short, one of China’s many spinning plates is the country’s vast shadow banking complex which allowed local governments to skirt borrowing restrictions leading directly to the accumulation of debt that totals some 35% of GDP and which has channeled trillions into speculative investments via the proliferation of maturity mismatched wealth management products.

One of the problems with the system is that it allows Chinese banks to obscure credit risk.

As Fitch noted earlier this year, some 40% of credit exposure is effectively carried off balance sheet in China’s banking sector, making it virtually impossible to assess the extent to which banks are exposed. When considered in combination with the unofficial policy whereby the PBoC forces lenders to roll bad debt thus artificially suppressing NPLs, a picture emerges of a system that’s decidedly opaque. Here’s what we said back in May:

The Rest…HERE

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