Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

CHINA’S CREDIT HYDRA EVADES GOVERNMENT CUTS

|Includes: iShares China Large-Cap ETF (FXI)

Following yesterday's examination of bank-trust cooperatives, reports emerge today noting that China's crackdown on bank-trust lending is already having an effect. But as one financing source is severed, another takes its place, and industry players are already finding ways to subvert the government plan and continue China's red-hot credit binge.

In "Policy Change: Bank-Trust Cooperatives Are Just the Beginning; Be Mindful of Rollover Asset Pools", Moneyweek reports:

"在叫停的一兩周後,市場中預計年化收益在4%以上的產品數量急劇下降。同時由於政策等各種因素的不確定,各行也放慢了開發新品的步伐" "[t]wo weeks on from the governments' order to halt, the market is already estimating that financial products with yearly returns over 4% will see a sharp drop. Any belief that greater returns can be found elsewhere is also diminishing as banks are reducing the introduction of new products given the prevailing uncertainty regarding government policy."
Good news right? First we cool the housing markets; then we cool the lending. Unfortunately, enforcing the power never comes easy.
"对一个月前的叫停,银行虽然没办法在短期内找到新的替代品,但是仍做出了一些调整。某国有银行产品研发部门人士告诉理财周报记者,7月的叫停并没有太打乱部门的运作,虽然部门并没有完全新的理财产品来替代,但是在某些产品上可做一些小改进。比如可以加大设计结构性理财产品力度,利用该产品募集资金建立资金池,然后将资金池中资金做多元投资,其中一部分资金可投入债券或其它投资渠道,另一部份资金可投向企业贷款。这类产品一般都是短期产品,并且可以滚动式发行,这样又能保证投向企业的贷款长达一两年。"
"As for last month's stoppage, although banks have no way to find new replacement products in such a short time, they can still make some adjustments [in existing products]. An employee of a certain national bank's Product R&D division told MoneyWeek that the July stop order did not in any way disrupt his departments functioning. And though the department has still not created any new products, there is still room for improvement on the existing product mix. For instance, the bank can increase the dynamism of the financial products composition. In this way, the product's fund raising can be used to form an asset pool. Afterwards, money from this asset pool can be brought forth to make more diversified investments, such as securities or other investment channels. The asset pool could also be used to make commercial loans. Most of these products are short term with the ability for roll-over issuance. This way it can ensure that investment in industries loans can be extended for another year or two."
The key point of the above is the focus on "short-term". China's recent regulation required banks to essentially put all their off-balance sheet assets back onto their balance sheets within two years. Short-term products however are exempt from this requirement.
该人士告诉理财周报记者:“建行此类资金池在业内非常庞大。”但对于具体规模,该人士称不方便答复。 This source told Moneyweek magazine "these type of asset pools are very big in the industry right now." But when asked about their concrete scope, our source declined to comment.
The article concludes by citing an unnamed government official as stating that new regulations were already in the pipeline.