Fitch: China making progress in shrinking shadow banking

China's shadow-banking sector has shrunk in response to the regulatory clampdown  launched in early 2017, which could address certain risks to the financial system if it continues over the medium term, says Fitch Ratings.

Key points

Declining shadow-banking activity could create potential liquidity shortages, but the recently announced targeted cut to the required reserve ratio (RRR) illustrates that the authorities will use policy tools to guard against a significant impact on prioritised sectors.

Fitch expects the economy to start slowing in 3Q17, but the deceleration is likely to be gradual, with GDP forecast to grow by 6.3% in 2018, down from 6.7% in 2017.