Risk, Regulation and Policy
Chapter 2: Myth of Chinese banks’ success and shadow banking
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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