A Crack in the Great Wall: Too-Big-To-Fail Them: A Societal Perspective
Posted: 10 Sep 2013 Last revised: 11 Apr 2019
Date Written: August 31, 2013
This research is a prospective analysis of what the future of China’s financial regulation might hold. By considering that the people are ‘too-big-to-be-failed’, this paper argues that if a crisis is affordable in nominal terms (especially with the trillions of dollars in reserve), its social impact could well suffice to undermine the stability of the CCP. Thus there is a necessity to develop redundancies within the credit intermediation process so as to limit the economic effect and social impact of a future financial crisis.
To achieve this, it is submitted that Shadow Banking offers two transmission mechanisms (Instalment Plan and Peer-to-Peer lending) that should be promoted, albeit with limits, in order to maximize the benefits, whilst minimizing the risks.
The solution comes from an in-depth analysis of the political, economical and societal dynamics within the country so as to ensure that reform is feasible. Furthermore, by applying recent developments in the field of Complex Adaptative Systems, the possibility to make the Chinese financial system more robust is also envisaged.
Overall, this paper represents a necessary intermediate step before a(nother) great leap forward. This will be characterized by opening up China’s financial sector so as to unlock the currently foregone economic growth, caused by a dysfunctional allocation of resources within the economy.
Keywords: China, Shadow Banking, Financial Crisis, Financial Reform, China Shadow Banking, credit intermediation, complex adaptative system, chaos theory, systemic risk, parallel financial markets, financial regulation, financial stability, social stability, rawls
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