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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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    Keywords

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    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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