After years of rapid growth, China’s financial system decelerated in 2017, weakening overall economic activity. At the heart of this slowdown was a concerted deleveraging effort targeting “shadow” banking channels and non-bank financial institutions (NBFIs). As Beijing’s deleveraging campaign shifts from monetary to regulatory tightening, the threat of new asset management rules creates new risks for banks, as they will be forced to move assets back onto their balance sheets. The likely consequences are slower overall asset growth over time, as well as liquidity and credit risk within asset management products.
