Will the Golden Elephant No 38 rear its ugly head?
From Reuters in 2012, Beware of the “Golden Elephant No. 38”, a Chinese investment vehicle promises buyers a 7.2 percent return per year. Absent from the product’s prospectus is any indication of the asset underpinning Golden Elephant: a near-empty housing project in the rural town of Taihe, at the end of a dirt path amid rice fields in one of China’s poorest provinces.
In other words a really crappy Mortgage Backed Security. Like the subprime-debt lending spree in the United States that helped spark the 2008 financial crisis, the products are often opaque, and usually dependent on high-risk underlying assets.
The Golden Elephant No 38 is one of many instruments aimed at investors in China and they are usually created in the “shadow banking system” not subject to the same regulation as banks in China. The shadow banking system has grown to account for 1/5th of all new financing in China as the Chinese government attempts to put the breaks on things.
Now The Atlantic quotes a recent report from Credit Suisse which shows that total credit has risen in China from 120% of GDP in 2008 to 190 percent today most of it from the “shadow” banking.