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« U.S. jobs, inflation data support tapering of Fed bond buying | Main | The US$ Outperforms Gold, Silver and the HUI so far in 2013 »

Shanghai Surprise

by David Franklin,

The Economist recently reported that The Industrial and Commercial Bank of China (ICBC) displaced Bank of America to become the world’s biggest bank in 2012, marking the first time in history a Chinese bank has reached this pedestal. China now has four of the world’s ten biggest banks.1

Together, these Chinese banks have a combined market capitalisation of close to $1 trillion Canadian dollars, or three times the market cap of the Canadian banking sector. ICBC alone has 393 million individual customers, which according to the Telegraph is the equivalent of a single bank managing the bank accounts of every man, woman and child in Western Europe.2 In fact, Chinese banking sector assets have increased by $14 trillion since 2008, which is the entire size of the US commercial banking sector. China is a global banking force to be reckoned with.

From the outside, however, observing the Chinese banking system can be “like watching two dogs fighting under a carpet.” It's clear that something is happening, but it’s hard to tell exactly what .3

June 19, 2013 will go down in Chinese banking history as the day that overnight borrowing rates hit a record high 25%, thus effectively freezing the Chinese credit market.4 Under normal market conditions, the SHIBOR - which is the rate at which Chinese banks are willing to lend to each other for short periods of time – is typically less than 3%. Expert opinion is sharply divided over both the causes and implications of these skyrocketing lending rates.

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