In recent years domestic banks in China have turned more cautious towards lending to the real estate sector and bank loans have become increasingly difficult to obtain. As a result, more developers are seeking alternative sources of financing to fund their growth and expansion. One option is to raise debt through the shadow banking market.
The shadow banking system in China encompasses a collection of non-bank financial intermediaries which provide services similar to commercial banks but are not subject to the banking regulations. There are a wide range of intermediaries including underground banks, microcredit companies, off-balance sheet loans for domestic banks, private equity funds and trust products.
Due to the recent slowdown in the residential market, defaults are starting to emerge. This paper will examine these issues and discuss the implications for the China real estate market.
