China’s Central Banking System: Slight Glitch in the Chinese Matrix?

Posted by on July 2nd, 2013

It comes as no surprise that for the past couple of years, China has had the 2nd highest global GDP average in the world, next to the U.S. Statisticians say that 30 years from now, China’s share of global GDP – 40 percent – will dwarf that of the United States (14 percent) and the European Union (5 percent). The question on my mind and undoubtedly on many other people’s minds is how can this potential upside translate into making some serious profits?

For one of my medical device company clients, that means tapping into the Chinese manufacturing and technology by acquiring several Chinese subsidiaries. Awarded the top tier “Excellent Trusted Enterprises” Award for superiority in the industry, this Company’s subsidiary proved its worth and has been a major factor in my client’s growth here in the U.S.

I bet most of you are thinking yes- while China is highly productive and accounts for a significant portion of our imports, the country still has its fair share of serious deep-rooted issues on the financial front. And you’re definitely right about that. What’s been plaguing the Chinese economy most recently is their banking system – specifically something known as shadow banking. Essentially meaning that some of China’s biggest banks are able to lend outside the scrutiny of bank regulators – these banks are using lightly regulated wealth management products to repackage old loans and prop up risky companies and projects that might not otherwise be able to borrow money. This is causing hoopla of issues since there is no way of knowing how the banks are issuing the capital. In what should prove to be a thriving economy, could result in the worst crisis to happen to China – a massive series of bank failures. However, this problem is not going unanswered. Chinese Premier Li Keqiang is urging China’s bankers to restrict speculative spending. It won’t cause macroeconomic instability. But, if left unchecked, could become a problem for the state of Chinese economy, indefinitely.

While there are some kinks in the road to economic success, there is no doubt that we will continue to see a tremendous upswing in Chinese production and innovation. Granted, the road isn’t an easy one and it will take time to see the effects of the country’s growth. However, we are yet to experience the full breadth of China’s capacity. Something tells me it won’t be anything short of incredible…