The fall in China's shadow banking activities since the fourth quarter of 2020, reversing the growth over the first three quarters, is set to continue in 2021 as regulators withdraw economic stimulus and focus on containing financial systemic risks, said Moody’s recently.
Shadow banking assets slightly rose by RMB200 billion in 2020 to reach RMB59.2 trillion , after a RMB500 billion decline in Q4 reversed the RMB700 billion increase in the first three quarters, the credit rating agency noted.
The sector's share in nominal GDP for the year also declined slightly by 1.5 percentage points to 58.3%, the firm added.
"These figures reflect the regulators' focus on reducing shadow banking risks as China's economy recovers from the pandemic-induced downturn. We expect the sector to continue shrinking in 2021 as authorities tighten regulations to contain its growth," said Lillian Li, a Moody's Vice President and Senior Credit Officer.
"Economy-wide leverage will remain stable in 2021 as the government targets a credit growth rate that matches nominal GDP growth,” she added
Adding to ongoing efforts to preempt contagion risks to the financial system, the government will also tighten its oversight on fintech giants and microlending companies, including implementing measures to control innovative financial products when required and capital requirements on the online lending business of microloan companies affiliated with fintech firms, Moody’s observed.
In addition the China Banking and Insurance Regulatory Commission (CBIRC) has revealed it uses a broader definition of shadow banking than Moody's, which gave rise to the large difference between both entities' estimates of the sector's size.
In 2019, the CBIRC estimated that China's total shadow banking assets stood at RMB84.8 trillion, compared with Moody's smaller estimate of RMB59 trillion.
This is because of the different frameworks and definitions used, with the CBIRC including higher-risk assets in core shadow banking and a wide range of asset management businesses that are not part of Moody's estimates, Moody’s said.