Investment Institute
Macroeconomics

Resilience and realignment: Opportunities and risks in China’s banking sector

KEY POINTS
China’s banking system is facing some significant challenges from the country’s beleaguered property market and local government debt. In addition, while banks’ assets have grown in recent years, asset quality has deteriorated
Unlike overseas, Chinese banks’ mortgage exposure appears relatively small. But their exposure to property developers and local government financing vehicles present greater risks, with smaller banks particularly vulnerable
We believe a systemic banking crisis should be avoided but local government entanglement in the credit process poses risks
As a result, banks are shifting their focus towards high-tech manufacturing and services to enhance their profitability

China's economy has been grappling with significant challenges in recent years – primarily an unprecedented property downturn set against the backdrop of a broader economic slowdown. Additionally, the issue of local government debt, continues to exert pressure on the economy. Banks, often seen as the barometer of an economy, are experiencing tremendous strain from these challenges. Following our recent research analysing property market developments, in this note we analyse the banking sector’s overall health by examining its asset growth, asset quality and exposure to troubled economic sectors — specifically, the property market and local government debt. We will also explore China’s banks’ potential future.

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    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

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