The Cleanup features regular and in-depth analysis of the ways China’s financial system is dealing with the risks that potentially threaten its stability.

November 7, 2019

The People’s Bank of China (PBOC) has taken an unexpected approach to monetary policy this year. As the Chinese economy has slowed, the central bank has refrained from using the “flood-irrigation” (大水漫灌) approach (credit-fueled stimulus) as in the past. Instead, it is pursuing what it refers to as the “precision drip-irrigation” (精准滴灌) method.[1] This “drip-irrigation” approach is more than just… READ MORE

Financial Asset Exchanges
August 30, 2019

China’s nonperforming loan (NPL) market is notoriously opaque. There is no official data that tracks changes in investor demand for bad loans or the price at which banks and asset management companies (AMCs) are able to dispose of them. What little insight we have comes from the local Chinese press, where reports are sporadic, anecdotal, and lag behind real-time developments.… READ MORE

Commercial Paper
June 20, 2019

Late last year, Beijing became increasingly worried about the health of the private sector. In particular, it focused its concerns on the difficulties small, private firms had in accessing cheap credit. Yet access to credit has been a perennial problem for the private sector stretching back over a decade. So, why the renewed concern? The most common explanation is that… READ MORE

Bad Loans
Corporate Deleveraging
April 8, 2019

Since 2016, China’s financial authorities have been quietly pushing the banks to dispose of their bad loans more aggressively. The process has been incremental, but cumulatively meaningful. The measured pace at which Beijing is pursuing its debt cleanup could easily be misconstrued as timidity, a sign that China’s political leaders remain either uncommitted to dealing with the risk or unconvinced… READ MORE

Consumer Debt
February 1, 2019

For most of the loans in China’s financial system, when they turn bad there is some sort of security that allows the lender to claw back some, or even most, of what they’re owed. Much of that collateral takes the form of real estate, but collateral can also range from warehouses and factories in the case of corporate loans to… READ MORE