China’s shadow banks scramble for business as construction boom ends

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Credit demand collapses for the $3-trillion industry after a government clampdown on real estate firms' debt binge

Shanghai/Hong Kong — For more than a decade, Chinese developers' debt-fuelled construction boom enriched the country's shadow banks, who were eager to capitalise on the needs of an industry desperate for credit and too risky for traditional lenders.

It is also shrinking, with once-well-paid employees leaving for other jobs after scavenging for new deals. The industry's plight is a sharp contrast to China's main street financial firms, which the crisis has not yet seriously affected. The National Audit Office and China's banking regulator have both been reviewing trust firm accounts and deals this year for risk, said three people with knowledge of the matter.In an internal meeting in October, an executive at Shanghai Trust, a state-owned firm that once focused on property, said revenue was down by almost half this year compared with the year before, according to two people with direct knowledge of the meeting.

Because of the risk, shadow banks could charge interest rates of up to 18%, far higher than the typical 2%-6% seen at banks at the height of the boom. CCB Trust wants to invest in leading companies in niche fields; it recently invested in Beijing Tianyishangjia New Material Corp, which manufacturers materials used in train brakes, said one person who works at the company.

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