The Political Economy of State Capitalism and Shadow Banking in China

38 Pages Posted: 20 May 2015

See all articles by Kellee S. Tsai

Kellee S. Tsai

Johns Hopkins University; Hong Kong University of Science and Technology

Date Written: May 1, 2015


The Xi-Li administration faces the dual challenge of managing state capitalism and shadow banking as China enters a phase of more moderate economic growth. During China's first three decades of reform, private sector development occurred in parallel with prioritization of state-owned enterprises in strategic industries, and growth surged. This pattern of state capitalism rested on an unarticulated bifurcated financing arrangement whereby the formal banking system primarily served public enterprises, while private businesses relied primarily on informal finance. However, China's response to global financial crisis disrupted the preceding equilibrium of financial dualism under state capitalism. Unprecedented expansion of bank lending after 2008 created opportunities for a host of state economic — actors including SOEs, state banks, and local governments — to expand their participation in off-balance sheet activities.

Keywords: China, state capitalism, informal finance, shadow banking, financial development

JEL Classification: G23, G21, O17, P16, P26

Suggested Citation

Tsai, Kellee S., The Political Economy of State Capitalism and Shadow Banking in China (May 1, 2015). HKUST IEMS Working Paper No. 2015-25, Available at SSRN: or

Kellee S. Tsai (Contact Author)

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

Hong Kong University of Science and Technology ( email )

Division of Social Science
Clear Water Bay
Hong Kong

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