China's shadow-banking boom poses risks

CHINA'S shadow banking sector is piling up risk at the heart of the financial system and keeping deadbeat firms alive. The sums invested in so-called wealth management products surged 57 per cent last year to reach US$3.2 trillion. The growth alone is good reason to worry, but new data also suggests much of the cash is propping up troubled borrowers.

In China, wealth management products are short-term investments, typically distributed through banks, backed by assets ranging from cash and government bonds to corporate debt and derivatives. They have long been popular with retail investors seeking better returns than they can get from bank savings.

A recent report from state-owned China Government Securities Depository Trust and Clearing shows just how big the products have become. The industry's assets under management have doubled in two years and are now equivalent to almost 17 per cent of all Chinese bank deposits.