What Is Shadow Banking China Condition Weak Due To This System
Shadow Banking: China was once known as the fastest growing economy in the world. Today he is not at the top in this list, but still he is at the center of discussion. The reason behind that is shadow banking. Today, China is the second largest economy in the world. America is at number-1. Today India’s ranking is 5th. The world’s biggest economists are worried about China. He believes that the impact of the ongoing crisis in China can be seen in other countries as well. After all, what is the meaning of shadow banking, which has become a matter of concern for everyone. In today’s story we will try to know about it.
What is shadow banking?
Shadow banking has affected the real estate sector the most. Shadow banking means that a non-banking financial institution i.e. NBFC gives loans by bypassing the rules of the banking system. Banks give this loan on the basis of conditions decided by them. That means they do not follow all the rules set by the government and the central bank. By giving loan without following the rules, the bank gets into trouble.
Shadow banking was first used in America. When in 2007, the banking companies there started giving loans on easy terms. Which played a big role in the recession of 2008. Shadow banking directly affects the economy. Because when the banking system of a country becomes weak, its economy collapses. Many times banking companies go bankrupt.
There is a burden on this sector
Currently, two companies in China seem to be victims of shadow banking. One is Evergrande and the other is Country Garden. According to the Times report, more than a dozen companies have fallen prey to shadow banking in the last two decades. China’s property sector accounts for one-fourth of its economy. The real estate sector took loan from the bank due to low terms, now it seems unable to repay the loan. Actually, due to decline in demand, flats are not being sold, due to which property dealers are not able to return the money to the bank on time. One of the biggest reasons behind flats not being sold is the rapid increase in flat prices.
Where does so much money for loan come from?
If we tell you about where property developers get the most loans, then China’s investment of $2.9 trillion in real estate comes from the trust industry. Zhongrong, a trust that manages funds of corporate customers and rich people, has a fund of $ 87 billion. Last month it had failed to return funds worth $19 million.
This situation is increasing in figures every month. Fund houses are giving loans, but they are not getting it back. The debt of China’s Local Government Financing Vehicles (LGFVs) is increasing rapidly. According to the IMF report released on China’s economy, the loan had reached about 7.8 trillion dollars in the year 2022.
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This post originally appeared on www.abplive.com