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CommentJuly 3 2017

China financial risk needs more than a clampdown

China is targeting high level officials and wealth management products in its assault on shadow banking. But measures only tackle the supply, not the reasons behind the demand for unregulated financing.
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The crackdown on shadow banking and financial sector malpractice that Chinese regulators intensified in early 2017 is not new. China has unleashed tough directives before, clamping down on trust loans a couple of years ago and banning local government financing vehicles (LGFVs) from printing bonds in 2016.

The targeting of high-profile figures in the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission by China’s corruption watchdog makes the 2017 initiative particularly tough. But these efforts alone might not be enough to resolve the key problem, which is de-leveraging an economy whose total debt is two-and-a-half times its gross domestic product.

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