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 12: “A tale of three zones” and financial reforms

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


After the Communist Party of China’s (CCP) Third Plenum of the 11th Congress in 1978, the Chinese government instituted some political changes: four special economic zones were established in 1979, the development of the coastal region was set forth as national policy in the Sixth Five-Year Plan (1981–1985), 14 coastal cities were opened in 1984; three deltas, the Lower Yangtze delta, the Pearl River Delta and the Xiamen-Zhangzhou-Quanzhou Triangle, were declared as Coastal Economic Development Zones, and Hainan was established as a special economic province. These measures of selective territorial deregulation including special economic zones, coastal open cities and central economic cities allowed more than two dozen sub-provincial cities to implement more autonomous and preferential economic policies. The key objective of the set-up of special economic zones is to attract foreign investment, capital and technology. A series of preferential policies has been granted to the special economic zones in the past three decades so that they can attract more foreign investment, advanced technology and managerial skills. The underlying rationale of the economic zone model is a “trickle-down” strategy not only diffusing growth but also governance or policymaking experience from the coastal to other areas. Therefore, these zones are labeled as “windows” to implement more liberal and deregulatory economic policies, and are used as “corridors” through which developmental ideologies and experiences can be diffused into other localities.

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