Asia Global Institute's Distinguished Fellow Andrew Sheng and Ng Chow Soon look at the emergence of shadow banking, and its opportunities and challenges for the reform of China's financial sector.
"Shadow Banking in China: An Opportunity for Financial Reform", published by John Wiley, is now available to order. Please click here for more information and to buy the book. An in-depth explanation of the book, prepared for its launch on July 11, can be found here.
While China has weathered the Global Financial Crisis (GFC) with continued economic growth, it now faces new headwinds in the form of a slowing global economy and weaker world trade. As the economy adjusts to a new normal of slower growth where reliance on export-driven growth may no longer be viable, questions are being raised about the sustainability of the Chinese model. Some commentators have suggested that China's "Lehman moment" is imminent and that the Chinese shadow banking sector could become the cause of the next systemic global financial crisis.
Shadow Banking in China seeks to bring the explosive growth in China's shadow banking credit into the light as there is much confusion over the potential risks of Chinese shadow banks due to definitional, methodology and measurement issues. Using China's national balance sheet data, the Paper assesses that the size of its shadow banking risk assets (at RMB 30.1 trillion or 53 per cent of GDP and 27 per cent of formal banking system credit assets in 2013) is still manageable, based on current fairly favorable conditions, as China has adequate resources and policy flexibility to deal with what is an essentially domestic debt problem.
Disclaimer: The views expressed in this report are those of the authors and do not necessarily reflect those of the Asia Global Institute. The authors are solely responsible for any errors or omissions.