Part2: The characteristics of the shadow banking system in China

In the last blog, I am talking about what is “shadow banking system”, however, after this week’s research; I suppose the shadow banking system I talked last week is a typical U.S. style. Compare with the shadow banking system in China, although the operation method are the same, but the project of the operation have a huge different.

Compare with the U.S. style shadow banking system and Chinese style. We can observe the following different.

1.      The formal financial sector

Chinese financial market is a typical mode of indirect financing, which leading by commercial banks. Although the develop speed of Chinese financial market is fast, but the capital market in China is still lag behind, the proportion of direct financing is still very low, it made the Chinese shadow banking system are still focus on the traditional bank financing business, few financial innovation like the western countries, therefore, the cooperation between commercial banks and trust companies become the major part of shadow banking system.

 2.      The informal financial sector

The another major part of shadow banking system is the private financing organizations, which include pawnshop, underground bank, private equity fund, civil RCAs and so on. According to the statistical report by People's Bank of China (central bank), form Jan.2011 to Jun. 2011, the scale of social financing increased by 7.76 trillion yuan, bank loans increased 4.17 trillion yuan, 53.7% of the total, in other words, 46.3% are from the shadow banking system, nearly half of the total.

As Lv (professor of Beijing university) said: The Chinese version of the shadow banking system is different from the Western developed countries’ traditionally defined, the main form is not securitization of real estate loan, is the "trust and bank cooperation", “underground banks” and other such financial form. (detail click here)