Chinese bank assets hit $33trillion at the end of 2016, versus $31trillion for the Eurozone, $16 trillion for the US and $7 trillion for Japan. 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. China’s GDP had 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 2016, according to the analysis. FT says the lag reflects Beijing’s increased ‘financial deepening’ – the term for the growth of a country’s financial system relative to GDP. This has been fueled by an extraordinary increase in bank lending since 2008, when the government unleashed aggressive monetary and fiscal stimulus to buffer the impact of the global crisis, says the analysis. However, according to an economist at Cornell University, Eswar Prasad, quoted by FT, 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.
