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Sunshine Despite Fear of Shadow Banking in China

That deal eased "concerns that default would pound investor confidence in shadow banking and trigger credit crunches," Xinhua said.

Defaults, we might suppose, aren't so bad. There's always a way out of the shadow.

They're also rare compared to the amount of lending in China. In 2012 just 0.27% of trust products faced "repayment difficulties," the Mingtiandi real estate newsletter says on its Web site this month, citing data from the China Trustee Association.

Lending grew an unusually fast 18% in January, UBS Bank notes in a Feb. 17 report. Assets in China's trust industry went up 46% last year to $1.8 trillion, Mingtiandi says. These numbers don't depict much fear.

China's tough talk about cleaner shadow banking could hit liquidity again as it did in mid-2013 and last month. But the government knows its economy -- still led by manufacturing and infrastructure despite endless gab about reforms -- needs investment, meaning new loans. Given government support for loan-driven investment, any central bank squeezes are likely to be episodic rather than routine or long term. The biggest risk may be volatility, not a sinking of the markets.

"We are...more concerned about credit volatility triggered by renewed bouts of liquidity squeezes, a tightening of shadow credit regulations, or more importantly, any potential credit defaults in the shadow credit market that could lead to a temporary shrinkage of certain credit markets," the UBS report says.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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