For the new reader an accessible and informed primer; for practitioners, some useful reminders.
Writing last July in an International Monetary Institute Working Paper, Chao Xi and Le Xia from the Chinese University of Hong Kong and BBVA Asia respectively, took a look at the sector from an emerging regulatory framework perspective.
Their catalogue in the note of how regulation has been gradually introduced highlights an important point about China’s shadow banking complex; the government are well aware and keep pretty close tabs.
The article traces the arc of its growth explaining its roots in the 2008 stimulus which was followed almost immediately by a contradictory tightening of operating metrics in the banking system.
How do you stimulate an economy whilst, at the same time, telling banks to run tighter ships? The solve for Y was the growth of off-balance-sheet activity; aka, what we today call shadow banking.
There’s no sign authorities are interested in squashing this activity. It’s proven useful as vehicle for smaller borrowers to access credit and, with the notable exception of private lending, is mostly transparent.
You can access the paper in full at Shadow Banking in China.
Happy Sunday.