Europe and America aren’t alone in the stress test ‘PR exercise‘.
Chinese regulators are also performing their own stress tests, on the nation’s trust firms.
Regulators are trying to judge whether ot not Chinese financial institutions can survive a downturn in the country’s property market, according to the Economic Observer.
We’ve written here previously how China banks and trust firms were exploiting a major regulatory loophole. Loans are being structured into investment products and then sold off to investors in order to make room for more loan growth than government quota’s aim to allow.
As a result new loan growth in China has already hit the government’s 2010 full-year target, in just six months.
This makes the Chinese regulatory commission look pretty toothless, given that they are receiving information from loophole-using financial firms:
Trust firms are required to submit information about their exposure to the real estate sector, including investment sizes, collateral and risk control measures, to the China Banking Regulatory Commission (CBRC), the newspaper reported.
The newspaper said the stress test results may result in less funding to property development from trust firms.
In the first half of this year, Chinese trust firms issued property trust investment plans totaling 67.7 billion yuan (nearly USD 10 billion), compared to 40 billion yuan for the whole of 2009, the newspaper reported.
So here they’re not so much looking to calm markets, but are judging where problem firms may be, which means that China’s own stress tests may be less of a PR exercise than those of America and Europe.
Even if their stress tests are tough, the question is whether or not regulators can prevent the wrong firms from lending too much. So far they’ve been failing to control loan growth. We reiterate — watch this space, this is China’s weak spot in 2010.