Analysts have warned that the growing problems in the Chinese banking system could spill over into a wider financial crisis. Charlene Chu, a former senior analyst at Fitch in Beijing and now the head of Asian research at Autonomous Research, said the rapid expansion of foreign-currency borrowing meant a crisis in China’s financial system was becoming a bigger risk for international banks. One of the reasons why the situation in China has been so stable up to this point is that, unlike many emerging markets, there is very, very little reliance on foreign funding. As that changes, it obviously increases their vulnerability to swings in foreign investor appetite, she said in a newspaper interview. Chu has been warning since 2009 about the growth of a shadow banking system in China that has helped fuel the credit expansion seen in the country in the wake of the western financial crisis. However, fears are growing that the build-up of foreign borrowing by the Chinese, particularly in US dollars, is creating an even greater build-up of risk than that seen before the crisis of 2008. Figures published by the Bank for International Settlements (BIS) in October showed foreign currency loans booked in China, as well as cross-border borrowing by Chinese companies, had reached $880 billion as of March 2013, from $270 billion in 2009.
