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Chinese shadow banks shrink after clampdown, Fitch says

China's shadow banking sector has shrunk in response to a regulatory crackdown which began early in 2017, and is likely to face continued regulatory scrutiny so long as the authorities remain comfortable with economic growth, Fitch Ratings said Oct. 8.

Systemwide interbank assets were down 13.8% annually as of end-August, while inter-bank liabilities fell 1.6%, the first time both have fallen since 2010, Fitch said, citing China Banking Regulatory Commission data. The outstanding wealth management product balance has declined by around 10% year-to-date, the rating agency estimated.

While a shrinking shadow banking sector could potentially create liquidity shortages, a cut to required reserve ratios Sept. 29 by the People's Bank of China for banks lending to rural and micro enterprises showed that authorities are trying to avoid any big impact to key business sectors, Fitch said.

The China Banking Regulatory Commission said in late September that any failure by regulators to spot and handle shadow banking risks in a timely manner would be viewed as a dereliction of duty.

Chinese banks will experience significant capital pressures and liquidity challenges over the next two years due to the Chinese government's deleveraging policy, S&P Global Ratings said Oct. 6.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.