China real estate crisis threatens investors
During the housing crisis in America, investors lost billions of dollars via complex derivatives supported by subprime mortgages. In China, however, trusts are the real threat to investors, Bloomberg reported.
Trusts are the fastest-growing portion of China’s shadow banking, which covers all financial activity that takes place outside of the formal banking system.
“Trusts have flourished because more than 90 percent of China’s 42 million small companies don’t have access to bank loans. At the same time, most of the nation’s savers are starved for yield (interest rates on bank deposits are often negative once inflation is factored in) and are attracted to the double-digit returns the trusts advertise,” the Bloomberg article stated.
According to a UBS report, trusts now account for more than a quarter of China’s estimated $3.35 trillion in nonbank lending.
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