The Regulation of Shadow Banking in China: International and Comparative Perspectives
(2015) 30 Banking and Finance Law Review 481
25 Pages Posted: 12 Sep 2015 Last revised: 20 Nov 2015
Date Written: September 10, 2015
In the wake of the global financial crisis of 2008, shadow banking has been widely identified as one of the major sources of financial instability, and its regulation has become the subject of much international debate. Existing studies, however, have focused on advanced economies, such the US and EU; much less has been written about China, despite its rising economic power.
This paper represents an attempt to fill this research gap, assessing China’s regulation of shadow banking from international and comparative perspectives. Shadow banking has grown rapidly in China over the past few years, which exhibits distinctive features in terms of driving forces, components, players and risk profiles. The recently issued Circular No. 107 represents a significant improvement on China’s shadow banking regulation. It clarifies the regulatory arrangements for shadow banking within the existing sectoral regulatory structure. While this may work in the short term, it is argued that China should consider a more fundamental reform towards the twin-peaks model in the long term. Further, it sets out useful substantive guidance and sound regulatory approach, but its workability depends very much on implementing rules to be issued by various agencies in the future.
Keywords: shadow banking; financial instability; regulatory structure; China
JEL Classification: E58; F33; G21; K22
Suggested Citation: Suggested Citation