February 12, 2018

BIS published a working paper analyzing the structure and dynamics of the shadow banking sector in China. The paper focuses on the main activities and linkages of shadow banking with the formal banking sector, also analyzing the evolution of shadow banking activities in China.

The authors take a broader look by developing a map of shadow banking that allows for a comprehensive and structural analysis of shadow banking activities. While the economic drivers of shadow banking in China are similar to those in the United States, the map points to several unique characteristics of the Chinese system. One defining feature of the shadow banking system in China is the dominant role of commercial banks, true to the adage that shadow banking in China is the "shadow of the banks."

Moreover, the paper reveals that the shadow banking system in China differs from shadow banking in the United States, as securitization and market-based instruments play only a limited role in China. With a series of maps, the authors show that the size and dynamics of shadow banking in China have been changing rapidly. This reveals a marked shift in the relative importance of different shadow banking activities. New and more complex "structured" shadow credit intermediation has emerged and quickly reached a large scale, while the bond market has become highly dependent on funding channeled through wealth management products. Consequently, the structure of shadow banking in China is growing more complex.

 

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Keywords: Asia Pacific, China, Banking, Securities, Shadow Banking, Financial Intermediation, Market Based Finance, BIS

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