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China's wary lenders force rust-belt country to take expensive shadow bank loans 

May 26, 2016

Nathaniel Taplin, Reuters

Mainstream lenders in China are squeezing borrowers in the country's rust-belt provinces, forcing firms to take on higher interest-rate loans from so-called shadow banks, a Reuters analysis of central bank figures shows.

In several of the hardest hit industrial provinces, including deeply troubled steel and coal producing regions, the swing back to the shadow sector - lenders outside conventional banking who usually charge much higher interest rates than traditional banks - has been stark.

Firms in Liaoning, an industrial powerhouse in China's northeast, borrowed over 2,000 percent more from shadow banks in the first quarter of this year, compared with a year earlier. The borrowing accounted for 19 percent of the province's total financing, up from just 1 percent in the first quarter of 2015.

"Economically advanced regions, especially those with strong access to municipal bond funding, don't really have to fall back on shadow financing as much," said a director at a Shanghai-based asset management firm. "Smaller and poorer areas are different." Read more

 
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