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Barry Lau From Precy Dumlao, Opalesque Asia:

The underground financing, also known as "shadow banking" that exists in China, is posing a major challenge for hedge funds operating in that country but may also provides opportunities for those with sufficient know-how of the intricacies of the Chinese financial system, said Barry Lau, Managing Partner at $1bn Gen2 Partners during the latest Opalesque Hong Kong Roundtable. Lau cited official data that showed that to date, the number of these shadow banks (comprised of pawnshops and small-scale lending firms), is 2,614, but many more are in operations without licenses and registration. As of last year, these shadow banks provided RMB 200 billion in financing, but the unofficial volume is many times that figure.

He explained that it is often difficult for offshore hedge funds and investors to directly compete against shadow banking entities because they have inherent advantages from knowing the landscape, having the right infrastructure and more importantly, the ability to move really fast which cannot be said of offshore investors.

"Now, insofar as overseas funds trying to compete in that market one has to face a few issues. This Chinese shadow-banking system Roushana is referring to has guys on the ground who have close accessibility to the assets. They have the ability to hold the collater......................

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