The Development of China's Shadow Banking and its Risk Containment

In recent years, the global shadow banking system has become a major new factor in causing worldwide market financial instability. Different from shadow banking in the U.S., which was the result of increased competition,the explosive development of China's shadow banking in 2008-2010 resulted from the Chinese government's monetary policy. Currently total value of loans provided by the shadow banking system is equivalent to 40% of China's GDP. Its activity has helped boost China's economic growth but has also brought risk to China's financial stability. By comparing China and US shadow banking systems, we studied the linkage between the financial intermediaries in the system, information flow, liquidity, leveraged operations, regulation,and the endogenous aspects of China's shadow banking system. We investigated the rational development of the relationship between the shadow banking and financial stability and related measures in risk containment.