The internationalization of Renminbi (or Yuan, Chinese currency) is a clear policy and irreversible direction of the Chinese Government. The mid-term policy strategy is to make inflow and outflow of Renminbi easier, and to boost the use of Renminbi in international trade and finance to reduce reliance on the US dollar. This chapter discusses the evolution of offshore Renminbi businesses in Hong Kong and elsewhere.
Chinese banks appear to be freed from the recent financial crisis. While their counterparts in Western countries are suffering from the financial crisis, Chinese banks have been able to cement their positions in the market place. Nevertheless, an in-depth 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 booming shadow banking sector including but not limited to the local governments’ debt crisis. This chapter not only looks into these problems by reference to the path dependency theory but also some related regulatory and policy initiatives.
According to the report released by the Financial Stability Board (FSB) in November 2011, shadow banking is defined as ‘credit intermediation involving entities and activities outside the regular banking system’. Put differently but simply, shadow banking is the realm of lending that does not rely on deposit-taking banks using customer money to fund loans. The International Monetary Fund (IMF) defines the shadow banking system as ‘off-balance-sheet and non-bank financial intermediation’ including Internet finance, micro-lending, asset securitization and some wealth management products. ‘Shadow banks’ in the context of Western countries refer to buy-out firms, hedge funds, venture funds and ordinary corporations which are using their investors’ money and wholesale funding to hire disgruntled bank traders, engage in direct lending and escape traditional banking regulation. In more advanced economies, shadow banking remains a key channel of credit intermediation that complements the formal banking system.