China: Growth of shadow banking fell sharply in 2017 – Nomura

Analysts at Nomura note that the amount of outstanding shadow banking assets of China grew to RMB133.1trn in 2017 from RMB124.9trn in 2016, based on their broad measure, but growth of shadow banking assets fell sharply to 6.5% y-o-y in 2017, from 25.9% in 2016.

Key Quotes

“The moderation of growth in shadow banking suggests that financial deleveraging has made some progress, although the outstanding amount of shadow banking assets remains substantial. We expect deleveraging to continue, as “risk control” is a key government priority in 2018.”

“Differentiation will remain the key theme in China’s economy in 2018, as we expect a flight to quality, with funds flowing out of the high-risk shadow banking sector into the lower risk formal banking sector. In the credit space, differentiation should mean a widening of credit spreads.”