Yet another bubble has caught up to China’s over-regulated economy, this time it’s growing in the domestic asset-management industry. The problem for China’s closed economy is that with no way for money to escape, any time the authorities manage to pop a bubble in one area of the economy, another grows somewhere else. Anjani Trivedi writes:
Chinese regulators are targeting the latest bubble in their financial system: the domestic asset-management industry. Unfortunately, it is a moving target.
The gargantuan industry—a byproduct of China’s trapped and churning capital—has more than doubled in size in the past two years and is now worth around 60 trillion yuan, or nearly $9 trillion. A closely knit network of financial institutions like banks, funds, trusts, brokers and insurance companies issue the bulk of the industry’s products.
The problem for Beijing isn’t just the industry’s sheer size. The evolving relationships between the key players and the ever-changing nature of the products they sell have made it nearly impossible to regulate. Even if the authorities manage to stamp out one area of egregious behavior, another quickly emerges.
Read more here.
Jeremy Jones, CFA
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