Inside China S Shadow Banking: The Next Subprime Crisis? Paperback – 16 May 2013
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About the Author
Joe Zhang is an independent corporate advisor based in Hong Kong. Previously he was Chairman of Wansui Micro Credit Company. He was named "A Microcredit Person of the Year" in 2012 by the Microcredit Association of China. He worked for 11 years at UBS, mainly as Head of China Research and then Deputy Head of its China Investment Banking Division. 1986-89, he served in the Central People's Bank of China. 2006-08, he was the Chief Operating Officer of Shenzhen Investment Limited.
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We are offered lots of details about Joe's lunches and meeting with various personalities, some of whom are irrelevant to the story. Some readers may see the first half of the book as overly egotistic, as it mainly serves to establish Joe's bona fides. The real 600-pound gorilla in the room, in my opinion, "Wealth Management Products" (WMP), do not even make an appearance until we are half way through the book. These are products offered to depositors that pay much more than the 2-3% the banks offer, and are mainly highly speculative and emblematic of a credit boom and a potential problem if China ever really goes through a credit crunch or recession.
Joe, not surprisingly sees no danger in sub-prime or micro-credit, and in fact the book ends with special pleading for looser regulations by China's financial overseers. I am not at all convinced that he makes out a good case that we don't need to worry. The sheer exponential growth in China's shadow banking, coupled with uncertainty regarding government guarantees for these loans, almost ensures there will be a blowout that will affect global markets.
The ending of the book is bizarre, almost cut off in mid-sentence.
On the plus side, however, I did learn something about credit and banking in the Wild, Wild East. Joe seems like an honest and forthcoming chap, with a propensity to tell it as he sees it, albeit as a cheerleader for micro-credit. Hence, three stars.
Most of the pages are assigned to the authors's experience and philosophy as a CEO at a Chinese microcredit company named Wansui, which I guess is not an attractive topic for readers who are not in the microcredit field. But it was interesting for me to see the vivid inside descriptions of Chinese financial industry even though i didn't buy this book for them.
The expected analysis on Shadow Banking and Debt problems shows up in the middle, and is very short. He says shadow banking problem of China is just a symptom, not a disease itself. So if you want a quick answer, the author's answer is "Chinese banks and government can handle them". However, the author is more concerned about the overinflated Chinese economy itself, which he sees very pessimistic about the future.
Interesting read, but not sure worth the price.
Unfortunately the book only partially covers this topic, contrary to the implications of its title. The book, instead of covering primarily this topic, is more a combination of autobiography and the author's business experience in the field, an overview of the regulatory problems in this segment of China's financial and banking sector, the author's views on China's real estate market (and potential bubble) and China's equity and IPO markets and the author's views on the importance of this segment of banking on Chinese society and the economy (primarily that it serves lower end clients that are not properly served by the "standard" banking sector in China). The reader learns of the author's views, among other things, that the Chinese property market is too inflated (even though the author does not state when he expects it to burst), the author's belief that the subprime sector is over regulated and China's banking sector is too biased towards large lenders and borrower and that interest rate ceilings for depositors need to be lifted. The latter is ironic as, in the book, the author states that he believes the odds of this actually happening are quite low but, in reality, it did happen only one week before this reviewer wrote this very review.
Not that all of this is bad. Actually it is very interesting and very good insights into these tangent topics, especially coming from someone with the author's background and integrity. The coverage of these topics, in this reviewer's opinion, make the book well worth reading for anyone with a serious interest in the Chinese financial, banking and real estate sectors. In this reviewer's opinion this is worth a four star rating. The problem, however, is that much of this discussion is a digression from the main topic. As a result, the reader does not obtain a very in-depth analysis of the possibility of a Chinese subprime crash (albeit he or she obtains Mr. Zhang's opinion that he does not believe that China's subprime banking sector is going to crash). This is especially a problem considering that the book itself is already quite short, consisting of only about 160 short pages (i.e., double spaced and small pages).