China's $15 trillion shadow banking industry is again in focus as investors withdraw from the debt-like savings products that helped drive leverage to risky levels.
Debt-ridden property developers and local governments raised funds from millions of ordinary Chinese via trust products. In recent weeks, at least two of the products have been forced to delay payments as the market started to seize up, making it harder to refinance maturing issues with new ones.
Authorities have issued a bunch of regulations in recent weeks to curb shadow banking, adding to about 30 new rules published since March when the government stepped up its deleveraging drive.
A late-December ruling from the China Banking Regulatory Commission has deterred banks from referring their clients to invest in trust products. That so-called channel business accounted for about 66 percent of total trust assets.
Zhongrong International Trust Co. delayed more than 900 million yuan ($141 million) of payments on two trust products which were issued to fund a local borrower in southwest China.
Some 229 new trust products have been issued so far this year, down from 666 in the same period of 2017. It seems that many borrowers might struggle with timely payments should issuance stay depressed.
Because of their poor credit profiles, the companies and local government entities that use the trust market to raise funds have little chance of getting bank loans or other types of financing, especially when lenders are restricting credit due to the deleveraging campaign.
In the past, products sold by securities firms partly filled the gap left by clampdowns on trust products. But now the government appears determined to curb financial risk and regulators across the banking, insurance and securities industries are under the microscope.