...China Exposure Reaches New High, Indicates Strong System Integration Fitch Ratings expects the strong growth momentum in China-related lending to push Hong Kong banks' gross mainland China exposure (MCE) to above USD1 trillion by end-2017. MCE grew by 21% yoy to end-June 2017 due to a 37% rebound in claims on mainland banks, while exposure to the corporate and other non-bank sectors (NBMCE) continued to grow, by 16%. Primary drivers have included trade-related financing and liquidity placements, while some of the more volatile aspects can relate to temporarily tight liquidity in the Chinese banking system and banks offering their customers to benefit from exchange rate/interest rate differentials. Fitch's bottom-up analysis of 28 banks' NBMCE (which accounted for 88% of system-wide NBMCE at end-1H17) shows that on average 39% is central government risk, 9% to local governments, 33% to entities in China, and 19% to entities outside China. The composition of NBMCE differs greatly amongst...
