BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/31
P2P services represent a tiny fraction of the informal credit financing of share purchases. Most of the money comes from various investment vehicles, including high-leverage umbrella trusts. Bank and investment firms, for example, have channelled funding to umbrella trusts via their wealth management products. Banks’ direct stock investments in China are not permitted. While the scale of unofficial financing used for share buying is unknown, most estimates range between 1.7 and 3 trillion yuan (€250–440 billion), or 3–6 % of the value of stock markets.
Formal brokerage-provided margin financing at end-July amounted to 1.4 trillion yuan (about 3 % of total stock market capitalisation), down from the June peak of 2.3 trillion yuan. Debt finance through official channels is subject to more regulation and stringent conditions relative to informal financing. Investors have been able to borrow about twice the value of their own input in margin buys and investments are limited to certain shares. In January, the CSRC amplified the rules that brokers can only lend to well-heeled investors with at least 500,000 yuan of their own money to invest. On July 1, the CSRC reneged on the rule and borrowing conditions were eased as the government undertook to deal with the collapse in share prices.
Markets stabilised this week after Monday’s (July 27) plunge in Chinese share prices.