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‘Elusive Risks’ Cited as Chinese Banks Blur Lines 

May 18, 2016

James T. Areddy, the Wall Street Journal

When China’s government set out a few years ago to turn the country’s financial sector into a better driver of growth, a dozen tycoons pooled funds to set up a new bank.

Today, the year-old Shanghai Huarui Bank Co. is the clearest example of something different in a Shanghai free-trade zone established to promote financial innovation. With a more-aggressive type of banking centered on selling small-time investors short-term, high-yield products online, it also illustrates how Chinese regulators are allowing lines to blur between traditional banking and lightly regulated Internet-based finance.

Moody’s Investors Service recently warned that such blurring in China’s banking industry, which it called “rising interconnectedness,” is a sign of the “evolving and elusive nature of risk in the financial system.”

China says 1,200 nonbank financial firms have faced problems returning money to investors this year.

Few Chinese banks have straddled the line between traditional and online services as openly as Huarui, which was among the first banks owned by private investors that China has licensed in two decades. The bank said that about one-third of its business involves smaller enterprises that the government hopes will give new support to the economy. It also has two teller windows and does some traditional deposit taking, but its main focus is on fast-moving Internet fundraising. Read more

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