This article was brought to our attention by Collective Member David Stewart.. Stories like these can't be good.
"For Bank of Zhengzhou, almost two-thirds of its non-standard credit went to local governments, property developers, construction companies and miners – all of which struggle to obtain normal loans because regulators have classified them as risky borrowers."
Smaller Chinese banks have ramped up their shadow lending activity, adding to the financial risks that threaten to trip up the world’s second-biggest economy. The 2013 results of unlisted banks, published over the past week, reveal that city-based lenders have been among the most aggressive in China in using complex credit structures to evade regulatory controls and issue higher-yielding loans. These shadow loans have been profitable for banks so long as growth has been strong. But as the economy weakens, they are more vulnerable to problems than ordinary loans because they connect banks to riskier borrowers, while giving them minimal capital cushions