Shadow banking in China

This encouraged commercial enterprises and private investors to place more of their money in financial products, causing the banking industry to grow.

[2] Shadow banking in China is identified to have first emerged in the late 1990s, however its rapid growth did not come until the period following the GFC in 2007.

The Chinese shadow banking is distinct in that China has a bank-dominant financial system, and unique regulatory constraints on credit lending.

As well, it is primarily driven by domestic institutions, rather than foreign investments and entities, as is usual in shadow banking activity in other countries.

[5] In China, where banks are discouraged from lending to certain industries and are mandated to offer frustratingly low interest rates on deposits, non-banks fill the gap.

[7] One of the controversies of this industry is that retail investors are largely unsure about what sorts of risks they are taking on when engaging in shadow banking.

The number of WMPs throughout China has increased steadily in recent times, approximated to be, "less than ¥500 billion in 2004 to ¥9.5 trillion by the end of 2013.

They designed and issued by, "non-bank financial institutions including trusts, brokers, insurance companies, and securities firms.

[2] In China, financial firms operate as trust companies, mainly though managing assets and investing for clients.

[20] This policy was adopted in 1995 and was designed to prevent rapid growth of commercial bank's credit scale in order to control liquidity risks.

[21] Furthermore, the establishment of the Financial Stability and Development Committee in November 2017 was an extra step towards increased oversight over shadow banking activity.

Specifically, the Central Bank issued new guidelines tightening rules on asset management in China.

[24] These measures included stopping banks from participating in the decision-making behind the loan, as well as barring them from providing guarantees of any kind on the financing itself.

[25] This move was also intended to push credit back to conventional financing channels such as on-book loans and bonds from financial institutions.

Dropping the LPR was identified as one of the methods for decreasing shadow banking activity, as it allows for more borrowers to access lines of capital.