Chinese authorities are finally starting to take sharper aim at the risks building within the non-bank financial sector, particularly leveraged pools of higher-risk assets funded by short-term wealth management products (WMPs) and overnight borrowing via the pledged repo market. While the stock market sold off yesterday, the corporate bond market remains more vulnerable to a sharp correction from regulatory limits on leveraged positions held by non-bank financial institutions. A sustained crackdown on “shadow” banking channels would cause bank asset and credit growth to slow significantly in the coming quarters, with the key impact for the real economy likely to be seen in the property sector.
