Shadow Banking in China

Shadow Banking in China

Risk, Regulation and Policy

Wei Shen

This timely book investigates the dynamic causes, key forms, potential risks and changing regulation of shadow banking in China. Topics discussed include P2P lending, wealth management products, local government debts, and the underground lending market. Taking policy considerations into account, the author provides a comprehensive analysis of the regulatory instruments tackling the systemic risks in relation to China’s shadow banking sector. Central bank’s role, interest rate formation mechanism, exchange rate reform and further deepening reform of the regulatory regime and financial markets are also thoroughly discussed in the context of China’s continuing financial reform.

Chapter 2: Myth of Chinese banks’ success and shadow banking

Wei Shen

Subjects: asian studies, asian politics and policy, economics and finance, asian economics, financial economics and regulation, law - academic, asian law, finance and banking law, regulation and governance


Chinese banks appear to be outside the recent financial crisis. While their counterparts in Western countries are suffering, Chinese banks have been able to cement their position in the market place. Nevertheless, a deep look at the Chinese banks’ lending practices indicates that Chinese banks are also encountering some critical problems such as policy-oriented lending and lending irregularities, which have resulted in a local governments’ debt crisis. This chapter not only looks into these problems by reference to the path dependency theory but also the shadow banking sector against this background. Section 1 raises a question mark against Chinese banks’ great success by comparing the banking sector’s general performance before and after the global financial crisis. Sections 2 and 3 focus on some pressing problems Chinese banks have brought up in recent years. Sections 4 and 5 touch upon the factual and analytical perspectives of China’s shadow banking sector respectively, and attempt to understand the concept of shadow banking in the Chinese context. A short conclusion follows in Section 6.

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