Assessment of the Shadow Banking in China: an unregulated threat for its banking system?

Details

Supervisors

Luc Henrard

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

The Shadow Banking System, in the United States and in Europe, has known a significant growth before the 2008 crisis. Well-defined and understood nowadays, we could wonder if this statement is also valid for the Chinese State. Hence, this report will strive to comprehend and assess the Chinese Shadow Banking system in order to understand if this area represents a threat for the Chinese banking sector. By analyzing this shadow banking segment through the sources of funding perspective, provided by the Financial Stability Board, we discovered that the Chinese Shadow Banking has known tremendous growth over the last decade due to the numerous financing restrictions imposed by the Chinese authorities’ strong financial policy. However, due to its high interconnectedness with the traditional banking sector, Chinese regulators understood the crucial need to purge this sector. Henceforth since 2017, through new regulations and restrictions, the Chinese government has managed to control this unmonitored sector by providing tools and information to actors involved in such operation in order to increase the overall health and stability of its banking. Finally, tightening this sector without providing alternatives to underfinanced companies could lead the Chinese Shadow Banking sector to its complexification, reaching a credit intermediation chain closer from the one already observed in the past. Nevertheless, in the last few years, we saw the growth of online private banking led by Tencent and Alibaba which could represent a solution to such issue.