Shadow banking system in China : problems and prospects

• Main Authors: Du, Yujia, Wang, Sheng, Zhao, Zhenzhen
• Other Authors: Yip Sau Leung
• Format: Final Year Project
• Language: English
• Published: 2014
• Subjects: DRNTU::Social sciences
• Online Access: http://hdl.handle.net/10356/59371
• Institution: Nanyang Technological University

Surging growth of shadow banking activities in China has drawn great attention. However, past literature provides little information on which part of shadow banking creates excessive risks and which party suffers the most should there be losses. To fill the research gap, we identify the shadow banking components, evaluate the underlying driving forces of the size, investigate the default risk of the debtors and analyse the risk transfer mechanisms. Results have shown that individual and corporate investors suffer the most under small and medium scale of defaults. The banks are reasonably safe but are vulnerable to systemic risk created by the principal-agent problem. In the future, we expect there will be more but small-scale of default events, which is unlikely to trigger uncontrollable crisis. In view of the current policies, the effectiveness is limited. Cost and benefit of shadow banking should be re-evaluated to provide more sensible solutions to the current problems.