Behind the back of China's massive on-bal-ance-sheet lending activities and robust asset classes, you find another world populated by high-risk borrowers, such as smaller companies overlooked by the state-owned banks, and microlenders stepping into digital finance. Hidden in plain sight, China's shadow banking industry has a size and scope some countries could only dream of for their mainstream banking sectors, providing a significant boost to China's gross domestic product (GDP). However, the ever-present risk of contagion from economic shocks and bad assets is too great for the regulators to continue to turn a blind eye towards. A pivotal moment came in December 2020 when the China Banking and Insurance Regulatory Commission (CBIRC) defined for the first time what officially falls within the bounds of shadow banking. The "China Shadow Banking Report" defines shadow banking as credit activities that were outside the banking supervision system, and which apply credit standards that are significantly lower than those which are applied by the banks.
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