Inside China's shadow banking: the next subprime crisis
On June 27, 2013, the seminar of “Inside China's Shadow Banking: The Next Subprime Crisis” was held in Shanghai. This is the 9th installment of “Hongru Forum” in 2013. In this session, Mr. Zhang Huaqiao who has senior practical experiences in financial field was invited to give a keynote speech, and Liu Yannan, founder of Yooli.Com, Wang Yongqin, Professor of China Center for Economic Studies, Fudan University, Chen Yu, vice president of Dehope Asset Management Co., Ltd., and SIFL’s Gao Limin provided commentary. Liu Hongru Foundation’s Shen Danyi moderated.
After brief introduction of his new book Inside China's shadow banking: the next subprime crisis, Mr. Zhang Huaqiao vividly described the current status and problems of micro-loan companies with rich cases. He emphasized the rationality of shadow banking and pointed out that real problem lies with China’s regulated banking industry: Official interest rates, which are tightly controlled, have fixed the cost of borrowing below the pace of inflation for decades. Loan volumes are controlled by crude quotas imposed by the central bank. As a result, access to credit is determined not by market forces, but by official decree or personal connections. Those able to borrow, mostly big state-owned firms, have ample opportunity to make extensive and sometimes wasteful investments. Smaller companies are forced to seek out alternative sources of credit at much higher rates. Also, Zhang spread the topic and elaborated for the economic source of the production capacity surplus of domestic industrial projects and the high interest rate of bank financial products.
As a famous opinion leader on domestic internet finance, Chen Yu gave his own opinions on the “money shortage” problem that was recently discussed enthusiastically: “money shortage” has had huge impact on the real economy. If the real economy did not earn money, it was hard for money to return to the real economy. The current domestic problem is that there is more money than projects, so we should think of ways for cash to be flowing, only by doing so, the sound progress of economy may be stimulated.
Liu Yannan introduced the concept of P2P micro-loan for the audiences on the spot, and combining practices of micro-loan in Europe and the U.S. and the current P2P trials in China, he put forward suggestions for the on-line and off-line combination development pattern of domestic P2P micro-loan.
In the last interaction link, the audiences all enthusiastically asked questions. For the question of “under the assumption of future great depression for China’s economy, how enterprises should well utilize the huge domestic demand consumption opportunity in China’s market so as to promote economic development,” SIFL’s Gao Limin believed that the simplest opportunity for China’s investment on consumption items is to go to the third-tier cities where people have much higher disposable income.
“Hongru Forum” is a public seminar jointly launched by Liu Hongru Financial Education Foundation and Shanghai Institute of Finance and Law, and is held regularly once in two weeks. The seminar pays attention to various issues in China’s finance and macro-economy, and devotes itself to building a platform for cross boundary exchanges among excellent scholars, government and market institutions.
