China unseats eurozone as world’s largest banking system

China unseats euro zone as world’s largest banking system

New analysis (विश्लेषण) by the Financial Times shows China's banking system has overtaken (आगे निकल गया) the euro zone to become the world’s biggest by assets. The status reflects the country’s

increasing global influence (प्रभाव) and its reliance (भरोसा) on growth driven by debt. According to FT, China’s GDP surpassed the EU’s in 2011 at market exchange rates, but its banking system did not take over the top spot until the end of last year. That lag was fuelled (ईंधन) by an extraordinary increase in bank lending since 2008 when the Chinese government unleashed(फैलाया) aggressive monetary and fiscal stimulus to soften the impact of the global crisis.

“The massive size of China’s banking system is less a cause for celebration than a sign of an economy overly dependent on bank-financed investment, beset by inefficient resource allocation, and subject to enormous credit risks,” said Eswar Prasad, an economist at Cornell University and former head of the China division at the IMF. Statistics show Chinese bank assets hit $33 trillion at the end of 2016, versus $31 trillion for the eurozone. US assets stood at $16 trillion and the Japanese at $7 trillion. The value of China’s banking system is more than 3.1 times the size of the country’s annual economic output, compared with 2.8 times for the eurozone and its banks, the FT analyzed. Economists say Beijing’s increased stimulus has led to significant wasteful investment, industrial overcapacity, and dangerous debt levels. Unlike in developed markets, Chinese local government has relied heavily on bank loans to finance infrastructure. “There’s a lot of hidden sovereign credit within the corporate loans on bank balance sheets, which can distort the picture when you do a cross-country comparison,” said Hou Wei, China banks analyst at Sanford C Bernstein in Hong Kong.  While the world’s three largest banks are Chinese, experts say the true scale of Chinese banks is understated. Shadow banking has exploded in the country over the past seven years.

The authorities have announced a crackdown on underground banking, boosting efforts to curb capital outflow and fight corruption. Recently they signaled an intention to shift policy focus away from stimulus towards risk control.

Economists say more developed capital markets could help diversify China’s financial system away from banks but a more diversified financial system will reduce Beijing’s ability to manage money flows.

Definitions of overtake आगे निकल गया

verb

catch up with and pass while traveling in the same direction.

the driver overtook a line of vehicles

synonyms: pass, go past/by, get/pull ahead of, leave behind, outdistance, outstrip

(especially of misfortune) come suddenly or unexpectedly upon.

the pattern of economic ruin overtook them