Shadow Banking in China Compared to Other Countries

China’s shadow banking has been rising rapidly in the last decade, mainly driven by regulations for banks, the Fiscal Stimulus Plan in 2008, and credit constraints in restrictive industries. This sector has continued growing although the regulators repeatedly attempted to impose new regulations on banks and non-banks. The existence of shadow banking fulfills the high demand for funding. The standard view is that it poses risks to financial stability. However, in China this is not necessarily the case. Entrusted loans, implicit guarantees from non-banks, banks or government may provide a second-best arrangement in funding risky projects and improving welfare.