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Shadow banking in China compared to other countries

Author

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  • Franklin Allen
  • Xian Gu

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 nonbanks. 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 nonbanks, banks or government may provide a second‐best arrangement in funding risky projects and improving welfare.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:manchs:v:89:y:2021:i:5:p:407-419
    DOI: 10.1111/manc.12331
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    References listed on IDEAS

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    5. Phuong Mai Le, Vo & Matthews, Kent & Meenagh, David & Minford, Patrick & Xiao, Zhiguo, 2022. "Regulatory arbitrage, shadow banking and monetary policy in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).

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