Will China use the slowdown to change its economy and clamp down on shadow banking?

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I just came across this PBS report:

In my interview with Sky News last week, I said that China will be building more schools, travel agencies and restaurants, and that it is a positive development. (According to NBS, travel still accounts for only a small share of China's GDP.)

I also said that the Chinese government needs to do a better job regulating finance. If it won't protect consumers, there will be many more scandals like the one described yesterday in the FT:

Chinese police have arrested more than 20 people associated with “a complete Ponzi scheme” that allegedly took more than Rmb50bn ($7.6bn) from investors, according to the official Xinhua news agency.

It is the biggest scam yet to emerge from China’s unruly and largely unregulated peer-to-peer lending sector, part of the country’s shadow banking sector. Police had to use two excavators to uncover some 1,200 account books that had been buried deep below ground, according to Xinhua.

(I listed a few earlier stories about the scheme two weeks ago.)

The article lists other cases of suspected fraud:

On January 22 the Agricultural Bank of China, one of the country’s “big four” state lenders, admitted that it had discovered a “risk incident” involving Rmb3.9bn in funds, which local media said had been misappropriated by bank employees to invest on the stock market.

... Last month Chinese police also reportedly arrested the founder of the Fanya Metal Exchange, a trading platform based in the south-western city of Kunming that reportedly raised Rmb40bn from investors.

There are calls for further protests:

The allegation that one of China’s most popular online investment platforms was a Ponzi scheme has sparked a nationwide “rights protection” movement, with jilted investors calling for three days of protests.

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