Fitch: Contagion Risk Still High Despite......>

CHINA: Fitch: Contagion Risk Still High Despite China Shadow Banking Decline

- China's determination to reduce the size of shadow banking risks has exceeded

expectations, contributing to a faster than expected decline in assets, Fitch

Ratings says. The authorities' commitment is all the more surprising given the

backdrop of a slowing domestic economy and the China-US trade war;

notwithstanding, we expect this regulatory commitment to managing shadow banking

growth to continue in 2020. Potential contagion risk between banks and non-bank

financial institutions (NBFIs) has moderated somewhat. However, it remains high

given the ongoing linkages between banks and NBFIs, which means asset quality

and funding pressures within the NBFI sector remain sources of risks for banks.

While the ongoing clampdown has negatively impacted system liquidity, leading to

funding difficulties for weaker borrowers more reliant on non-bank financing, it

is viewed positively for the overall system over the longer term.

- Link: https://www.fitchratings.com/site/pr/10105133