China's Financial System and Economy: A Review

49 Pages Posted: 11 Aug 2022 Last revised: 6 Sep 2022

See all articles by Zhiguo He

Zhiguo He

University of Chicago - Finance

Wei Wei

Becker Friedman Institute

Multiple version iconThere are 4 versions of this paper

Date Written: August 30, 2022


China's financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China's financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation's yearly flow of liquidity accounting for unique features of China's financial system. While early work on China's financial system emphasizes the state-owned enterprise (SOE) reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels are not only intertwined with each other, but more importantly often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China.

JEL Classification: G10, G20, G30, O16, O17, O33, P34

Suggested Citation

He, Zhiguo and Wei, Wei, China's Financial System and Economy: A Review (August 30, 2022). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 105, 2022, Available at SSRN: or

Zhiguo He (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://

Wei Wei

Becker Friedman Institute ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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