China's shadow banking assets plunged to $393.40b in H1

It crashed from a peak of $9.16t.

Beijing’s widespread crackdown on financial sector risk is making considerable headway as the country’s shadow banking assets plummeted from $9.16t (RMB62.9t) in end-2017 to $393.40b (RMB2.7t) in the first half of 2018, according to credit rating agency Moody’s. 

Shadow banking assets as a share of GDP also continued to contract from 87% in 2016 to 73% as of end-June.

"Overall credit growth measured by our adjusted total social financing (TSF) series continued to slow in the second quarter of 2018, driven by a contraction in core shadow banking activities including entrusted loans, trust loans, and undiscounted bankers' acceptances," George Xu, a Moody's analyst said in a statement. 

Also read: Chinese bank asset growth slows to 6.6% in Q1 amidst deleveraging campaign

Entrusted loans, which are often not included in the balance sheet of agent banks or trustees, plunged to 3.5% in the first four months of 2018. The contribution of entrusted loans to the new increase in total social financing also fell to 5.9% in Q1. 

As a result, formal bank lending dominated the new supply of credit in the first half of the year as banks moved to on-balance sheet activities despite a slight let-up in the deleveraging campaign as the economy grinds to a halt.

The central bank has urged lenders to step up lending activities with new loans in July hitting $211b as tight credit conditions are crippling businesses and slowing output.

Also read: China's shadow banking crackdown buoys offshore financing market

In fact, limited liquidity has pushed the cancellation or delay of proposed corporate bonds to hit a five year high at 400 in H1 2018.

"We expect the contraction in shadow banking assets to moderate in the rest of 2018, as regulators are taking a more gradualist approach in response to slower domestic credit growth and a more challenging external environment," Michael Taylor, a Moody's managing director and chief credit officer for Asia Pacific added.

Photo from Mstyslav Chernov - Self-photographed, https://mstyslav-chernov.com/, CC BY-SA 3.0,