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Cash Dash from China's Banks to Private Lending Market

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Uploaded on Sep 26, 2011

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New reports claim billions of yuan are flowing from deposit accounts in China's biggest banks to the risky private lending market. It's raising fears of a debt-fuelled mortgage crisis. The news came a day after the International Monetary Fund voiced concerns over falling stocks in China's banks.

Concerns over bad debts in China's banks were given new momentum last week. The state-owned China Securities Journal published a report claiming billions of yuan were flowing from major Chinese banks to the private lending market.

This market brings in interest rates about ten times the official deposit rate. Demand for private lending has grown rapidly since the central government began lifting restrictions on bank lending to curb inflation, hitting small and medium sized businesses.

The Journal cited unnamed sources to claim 420-billion yuan in deposits that had flown to the private lending market in the first 15 days of September—from the Industrial & Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China.

Recent reports from other local media claim private lending is feeding large sections of the economy, with funds flowing from state-run enterprises, listed companies and even commercial banks.

Some, like Professor Guo Tianyong of the Central University of Finance and Economics, believe it could lead to a sub-prime mortgage crisis in China.

Internet intellectual property lawyer Zhou Bingqing told The Epoch Times newspaper the internet was playing a big role in popularizing this lending, as wealthy individuals sought ways outside of the low-yielding banking system to keep their money growing in check with inflation.

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