The Evolution of Shadow Banking System in Emerging Economies: The Role of Entrusted Loans in China’s Capital Market

41 Pages Posted: 29 May 2018

See all articles by Mayank Gupta

Mayank Gupta

Cass Business School City University London; University of Verona - Department of Economics; University of Padua - Department of Economics and Management

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Date Written: May 17, 2018

Abstract

In this paper, we analyze the Chinese economic growth model post-2008 and more notably the effect of 4 Trillion Yuan stimulus in the aftermath of the Global Financial Crisis. We look at the Chinese financial system and the credit creation mechanism in the economy. The data shows that post-2008 there has been a sudden increase in credit outside the formal banking system. We specifically focus on the o-balance sheet Entrusted Loans provided by non-bank entities via the shadow banking system. We explain the entrusted loan mechanism and the rapid increase in Non-bank credit. Our stress tests results for the 15 major banks in China indicate that the banks remain well capitalized in the case of an idiosyncratic shock, notably the SIFI’s but can experience contagion through the Interbank funding market via smaller banks.

Keywords: China, Shadow Banking, Banks, Stress Tests, Off-Balance Sheet Investment Vehicles

JEL Classification: G15, G23, G28, G38

Suggested Citation

Gupta, Mayank and Caporin, Massimiliano, The Evolution of Shadow Banking System in Emerging Economies: The Role of Entrusted Loans in China’s Capital Market (May 17, 2018). Available at SSRN: https://ssrn.com/abstract=3179922 or http://dx.doi.org/10.2139/ssrn.3179922

Mayank Gupta (Contact Author)

Cass Business School City University London ( email )

London, EC2Y 8HB
Great Britain
07466616332 (Phone)

HOME PAGE: http://www.cass.city.ac.uk

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
Verona, 37129
Italy

University of Padua - Department of Economics and Management ( email )

Via Del Santo 23
Padova, 35122
Italy

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

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