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Chinese Insurer Warns Of “Mass Defaults, Social Unrest” Due To “Mass Redemption” Run
One month ago, China came “this close” to the one event which terrifies Beijing more than anything: a run on China’s shadow banks.
As a quick reminder, 150 customers of China’s Mingsheng Bank, the country’s largest private bank, were furious in mid-April when they learned that some 3 trillion yuan invested in Wealth Management Products, the backbone of China’s shadow banking system, had vaporized after bank employees had engaged in fraud and embezzled the funds without ever investing it (later it emerged that Mingsheng employees had put the money into “cultural relics” and jewelry, for their own use).
And while fraud and embezzlement are both endemic in China, the bigger concern raised by the article was the threat of a bank run across China’s massive and unregulated, nearly $10 trillion shadow banking system. Indeed, while there have been numerous allegations and warnings that China’s entire shadow banking facade, dominated by WMPs and other “investment products”, is nothing but a giant ponzi scheme in which recoveries – should there be a bank run, a topic recently discussed on Bloomberg – would be non-existent if there is ever a bank run, defaults of WMPs issued by big banks – and this case an unapproved WMP – are rare, as are shadow bank runs.