Salient to Investors:

George Soros said:

  • China has a couple of years to control risks as t

    he rapid growth of shadow banking is disturbingly similar to the subprime-mortgage market in the US that caused the financial crisis of 2007-2008.

  • China can keep its current economic growth model for another year or two but not for another decade because household savings are no longer sufficient to subsidize the majority of the economy.
  • China is aware of the dangers and has succeeded in changing its growth model several times in its recent history, so is able to do it again with one caveat: vested interests are much stronger now than in previous occasions as the rapid expansion of shadow banking and its considerable influence over state-owned banks demonstrates.
  • 2014 will be turbulent with the euro at the center of the storm, and the decline in the yen and pound will probably aggravate the recession in Europe.

Shadow lending flourishes in China because 97 percent of its 42 million small businesses can’t get bank loans, and savers seek higher returns than lenders pay for deposits. UBS estimates the size of the total industry at 45 percent of GDP.

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