Shadow banking in China: expanding scale, evolving structure
Abstract
Purpose
This paper aims to survey available data sources and put China’s shadow banking system in perspective. Although bank loans still account for the majority of credit provided to China’s real economy, other channels of credit extension are growing rapidly. The fast expansion of shadow banking has spurred wide concerns regarding credit quality and financial stability.
Design/methodology/approach
This paper explores various data sources, provides an overview of shadow banking activities in China, discusses their close ties with banks and summarizes regulatory issues. Extensive descriptive data are included to provide a comprehensive picture of the nature of shadow banking activities in China. In particular, institutions and products are discussed in great details.
Findings
While China’s shadow banking system is by no means simple, it does not (yet) involve the extensive use of financial derivatives. Rather, shadow banking credit is often directly extended to the real economy. In addition, shadow banks are typically interconnected with commercial banks in various ways. The expanding scale and constantly evolving structure of the shadow banking system has posed challenges for financial regulators.
Originality/value
This paper attempts to quantify the scale and scope of China’s shadow banking activities and provides a consistent framework as the basis for cross-country comparison of shadow banking systems. This is one of the first scholarly research products that discusses the origin, nature and risks of China’s shadow banking system in a regulatory context.
Keywords
Acknowledgements
© All copyright reserved by the Federal Reserve Bank of San Francisco
This paper was previously issued in the Asia Focus series produced by the Federal Reserve Bank of San Francisco. Views expressed are those of the author and are not necessarily those of the Federal Reserve Bank of San Francisco or the Board of Governors. The author thanks Teresa Curran, Linda True and Walter Yao for their thoughtful comments. Any errors that remain are the author’s sole responsibility.
Citation
Li, T. (2014), "Shadow banking in China: expanding scale, evolving structure", Journal of Financial Economic Policy, Vol. 6 No. 3, pp. 198-211. https://doi.org/10.1108/JFEP-11-2013-0061
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Authors