Shadow Banking in China Compared to Other Countries

24 Pages Posted: 1 Jun 2020 Last revised: 8 Jun 2020

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Xian Gu

Durham University Business School

Date Written: May 20, 2020

Abstract

China’s shadow banking has been rising rapidly in the last decade, mainly driven by regulations for banks, the Fiscal Stimulus Plan in 2008, and credit constraints in restrictive industries. This sector has continued growing although the regulators repeatedly attempted to impose new regulations on banks and non-banks. The existence of shadow banking fulfills the high demand for funding. The standard view is that it poses risks to financial stability. However, in China this is not necessarily the case. Entrusted loans, implicit guarantees from non-banks, banks or government may provide a second-best arrangement in funding risky projects and improving welfare.

Keywords: Shadow Banking, Credit Constraint, Implicit Guarantee, Regulation, Financial Stability

JEL Classification: G20, G21, G23, G28

Suggested Citation

Allen, Franklin and Gu, Xian, Shadow Banking in China Compared to Other Countries (May 20, 2020). Available at SSRN: https://ssrn.com/abstract=3604341 or http://dx.doi.org/10.2139/ssrn.3604341

Franklin Allen

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Xian Gu (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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