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 3: Financial regulatory architecture: status quo

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


This chapter describes the current financial regulatory architecture in China, which is termed a one-bank-three-commission structure. “One bank” refers to the central bank, that is, the People’s Bank of China, and the three commissions are the China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), and China Insurance Regulatory Commission (CIRC), which are responsible for the banking, securities and insurance sectors respectively. In addition, the Ministry of Finance and the State Administration of Foreign Exchange play a supplementary role in the financial regulatory arena. This one-bank-three-commission architecture is indicated in Figure 3.1 below. In parallel to this so-called sectorally-divided (also sectoral or functional) regulatory regime, there exists a Twin-Peak structure, mainly initiated by Australia, and a single (or sole) regulator model mainly practiced by the UK. There has been a large amount of literature, especially after the latest global financial crisis, discussing the pros and cons of these three models. Recent preference of academics, regulators and policymakers for the Twin-Peak model, has been indicated in the financial regulation circle. It is beyond the scope of this book to comprehensively discuss and compare these three models. Nor is this chapter intended to claim the superiority of any of these three models. It is safe to say that the choice of national financial regulatory structure is largely driven by country-specific factors, and none of these regulatory models appeared to be solid enough to prevent the occurrence of a financial crisis completely. A comparison made in Table 3.1 below showing some key differences among these three regulatory models may be useful as background information.

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