China’s banking regulator is cracking down on financial engineering that Chinese banks have used to disguise trillions of dollars in risky loans as investment products.
The clampdown, which will force banks to make provisions they previously avoided by disguising loans as investments, is designed to deflate one of the fastest-growing areas of the vast shadow banking apparatus, where bad debts are increasing.
Shadow banking emerged as a force five years ago, ranging from interbank transactions through to wealth management products, which promise inflated returns often backed by loans to struggling companies.
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