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Shadow Banking in China

Author

Listed:
  • Kinda Hachem

    (Darden School of Business, University of Virginia, Charlottesville, Virginia 22906, USA)

Abstract

Shadow banking and the Chinese economy are two subjects that have independently garnered much attention. A new but actively growing literature is now emerging at their intersection. I review this literature and argue that shadow banking in China is not fundamentally different from the textbook definition of shadow banking, namely credit intermediation with maturity mismatch that is structured to avoid regulation. I emphasize maturity mismatch because that is what creates run risk and makes any shadow banking system inherently fragile. I explain how the rise of shadow banking in China can be traced back to stricter liquidity regulation, how shadow banking has changed the financial landscape in China, and what the current state of the industry is. Interactions between shadow banking and the rest of the economy have some characteristics that reflect China's unique politico-economic structure, but this is because the rest of the economy has these characteristics, not because there is something fundamentally different about the forces behind shadow banking in China.

Suggested Citation

  • Kinda Hachem, 2018. "Shadow Banking in China," Annual Review of Financial Economics, Annual Reviews, vol. 10(1), pages 287-308, November.
    • Handle: RePEc:anr:refeco:v:10:y:2018:p:287-308
    DOI: 10.1146/annurev-financial-110217-023025
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    Citations

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    Cited by:

    1. Eduardo Dávila & Ansgar Walther, 2021. "Corrective Regulation with Imperfect Instruments," NBER Working Papers 29160, National Bureau of Economic Research, Inc.
    2. Franklin Allen & Xian Gu, 2021. "Shadow banking in China compared to other countries," Manchester School, University of Manchester, vol. 89(5), pages 407-419, September.
    3. Nivorozhkin, Eugene & Chondrogiannis, Ilias, 2022. "Shifting balances of systemic risk in the Chinese banking sector: Determinants and trends," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    4. Ridoy Deb Nath & Mohammad Ashraful Ferdous Chowdhury, 2021. "Shadow banking: a bibliometric and content analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-29, December.
    5. Song, Zheng (Michael) & Xiong, Wei, 2018. "Risks in China’s financial system," BOFIT Discussion Papers 1/2018, Bank of Finland, Institute for Economies in Transition.
    6. Yang, Jizhe & Jiang, Tingfeng & Wen, Xingchun & Dai, Lu, 2024. "Time-varying and spillover effects of the macroeconomy on nonfinancial corporate financialization: Evidence from China," Journal of Asian Economics, Elsevier, vol. 90(C).
    7. Li, Weixue & Wang, Sipei & Cheung, Adrian (Wai Kong) & Xu, Changsheng, 2024. "Shadow banking, investment and interest rate transmission: Evidence from macroprudential policy in China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 115-133.
    8. Ren, Meixu & Ke, Konglin & Yu, Xin & Zhao, Jinxuan, 2023. "Local governments' economic growth target pressure and bank loan loss provision: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 1-14.
    9. Du, Julan & Li, Chang & Wang, Yongqin, 2023. "Shadow banking of non-financial firms: Arbitrage between formal and informal credit markets in China," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    10. repec:zbw:bofitp:2018_001 is not listed on IDEAS
    11. Qiuyue Zhang & Yili Lin & Yu Cao, 2024. "From Financialization to Sustainability: The Impact of Climate Risks on Shadow Banking Activities in Non-Financial Firms in China," Sustainability, MDPI, vol. 16(19), pages 1-20, October.
    12. Carletti, Elena & Claessens, Stijn & Fatás, Antonio & Vives, Xavier (ed.), 2020. "Barcelona Report 2 - The Bank Business Model in the Post-Covid-19 World," Vox eBooks, Centre for Economic Policy Research, number p329.
    13. Christou Anna & Eriotis Nikolaos & Lomis Ioannis & Papadakis Spyros & Thalassinos Eleftherios, 2021. "The Greek VAT Gap: The Influence of Individual Economic Sectors," European Research Studies Journal, European Research Studies Journal, vol. 0(4B), pages 851-882.

    More about this item

    Keywords

    shadow banking; maturity transformation; regulation; regulatory arbitrage; interbank markets; credit supply;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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