China's banks are faced with increasing risks born out of shadow banking, local government debt, bad loans in industries with overcapacity, and looming house price declines, an economist warned on Thursday.
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The alarm bell was sounded by Xiang Songzuo, chief economist at the Agricultural Bank of China, when speaking to Shanghai Securities News which is owned by Xinhua.
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Xiang expects 2014 to be a year of risk on a large scale, led by default risks. About 40 percent of shadow banking business and 30 percent of local government debts fall due this year.
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The danger stems from non-performing loans in sectors with overcapacity and the possibility of a fall in housing prices.
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Overcapacity is more serious in some sectors than others. Where the rate of capital flow has decreased and accounts receivable and payable increased, the demand for short-term loans or working capital will rise, he said.
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"All these problems will be manifested in more bad loans, and that's why the banks will have an increasingly difficult time," Xiang said.
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For the property market, Xiang sees a high possibility of price declines resulting from excessive supply, but did not foresee a collapse in the whole housing market.Â