## Figure 1.20. Risks and Adjustment Challenges in Chinese Investment Products

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**Canonical URL:** [Figure 1.20. Risks and Adjustment Challenges in Chinese Investment Products](https://www.imf.org/-/media/files/publications/gfsr/2018/april/ch1/pdf/figure1-20.pdf)

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### Key findings
- Investment vehicles are borrowing more (net repo borrowing rising) and holding more illiquid assets.
- Reforming investment products will further slow credit growth by weakening demand for corporate and financial bond issuance and by limiting small banks’ ability to increase lending without fresh capital.
- Estimated two-year loan growth capacity and required adjustments depend on the share of shadow credit recognized as loans.

### Investment vehicles: net repo borrowing and portfolio allocation
- Estimated average net repo borrowing outstanding shown across periods: Jun. 2015, Sep. 15, Dec. 15, Mar. 16, Jun. 16, Sep. 16, Dec. 16, Mar. 17, Jun. 17, Sep. 17, Dec. 17 (time series reported; values shown in chart).
- Investment vehicles: Estimated average net repo borrowing outstanding (Trillions of renminbi).
- Investment vehicles’ portfolio allocation categories reported as percentages across dates: Dec. 2014, Jun. 15, Dec. 15, Jun. 16, Dec. 16, Jun. 17, Dec. 17.
- “Relatively illiquid” and “Relatively liquid” asset shares depicted across Dec. 2014–Dec. 17 (percent allocation series shown in chart).
- Public mutual fund holdings shown are interpolated semi-annual data.

### Bank and NBFI repo positions and interbank activity
- Gross repo position includes the sum of outstanding month-end cash borrowing and lending positions.
- “Investment vehicles and funds” includes repo positions by mutual funds (which are net lenders) and other NBFIs not captured in the “Other NBFIs” category.
- Estimated average repo borrowing outstanding calculation: the People’s Bank of China—reported quarterly net repo borrowing volume for all funds, divided by the ratio of nonbank repo volume to month-end position, minus the reported net repo position of public mutual funds and other NBFIs.
- NBFI = nonbank financial institution.

### China bond market: holders of corporate and non-policy-bank financial bonds
- Chart title: "3. China Bond Market: Corporate and Non-Policy-Bank Financial Bonds Outstanding, by Holder (Trillions of renminbi)". (Holder breakdown presented in figure.)
- Reform of investment products is expected to weaken demand for corporate and financial bond issuance (as noted in figure caption).

### Shadow credit recognition and small and medium banks’ loan growth capacity
- Shadow credit definition: 100 percent of banks’ investments in third-party unconsolidated structured products and 20 percent of their sponsored non-principal-guaranteed wealth management products.
- Based on a sample of 25 listed banks with available disclosures.
- Assumes banks receive no external capital and maintain static capital and profitability ratios.
- Shadow credit recognition entails raising risk weightings for selected assets to 100 percent from initial weightings of 25 and 0 percent for structured products and wealth management products, respectively.
- Growth rates shown are annualized. Negative number indicates loan book would need to shrink to initially accommodate existing shadow credit. Loan growth shown is net of loans converted from existing shadow credit.
- Estimated two-year loan growth and annual loan growth (mid-2017) depicted in chart series (percent). Annual loan growth (mid-2017) shown as 17.5 percent.
- Chart label: "4. Chinese Small and Medium Banks: Two-Year Estimated Loan Growth Capacity Given Shadow Credit Recognition Assumption (Percent)".
- Chart axis marker: "Percentage of shadow credit recognized as loans" (series across 0 to 100 percent).

### Data sources and notes
- Sources: China Clearing and Depository Corporation; National Interbank Funding Center; People’s Bank of China; Shanghai Clearing House; WIND; and IMF staff calculations.
- Additional sources: Bank financial reports; S&P Global Market Intelligence; CEIC; China Central Clearing & Depository Corporation; National Interbank Funding Center; People’s Bank of China; Shanghai Clearing House; WIND; Bank Wealth Management Registration and Trusteeship Center; and IMF staff calculations.
- Note: Due to the lack of available data, data for June 2015 are the interpolation of December 2014 and December 2015 data.
- Note: “NSCA and other” includes mostly illiquid credit assets but also has derivatives and investment fund shares. NSCA = nonstandard credit asset.

*Figure 1.20. Sources as listed in the figure notes.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2018/april/ch1/pdf/figure1-20.pdf_