Posted inAT+

China’s shadow bank crackdown is finally working

It’s not quite a People’s Bank of China taper, but Beijing’s crackdown on shadow banks is suddenly getting as creative as it could be impactful.

Over the last week, Chinese regulators detailed plans to limit what mainland banks and wealth managers can do with so-called “cash-management products.” It’s a nearly US$1 trillion segment, one that involves investing in assets that must be traded for lower-yielding, higher-quality assets by the end of 2022.

It’s a pivotal sector. While only about $400 billion of these products are currently in circulation, their placement in assets rated lower than AA+ – often supporting riskier borrowers like property developers – is a vital lubricant keeping mainland credit markets liquid and agile.

Yet it is also a source of market froth that authorities want to tame. Beijing is now taking direct aim at these opaque investments by forcing banks and wealth managers to avoid sub-AA+ rated bonds and longer-term debt.

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