By Liao Min, China Banking Regulatory Commission Shadow banking is a risky business, for sure. That’s the reason why the Financial Times ran a recent series on shadow banking, with the first article investigating China. In China, shadow banking is a broad concern, given liquidity mismatches in the system, opaque asset quality and the fact that the end-users of such finance are often in the riskier sectors of the economy such as real estate and those struggling with over-capacity.

Source: blogs.ft.com

Somebody has to start fleshing out this shadow banking/shadow economies. The more it grows, the more it signals that the economy in the spotlight is dying or out of control.

"…Second, size matters and cost annoys, but it does not equal a global risk. China’s shadow banking is large in size, casts a long shadow and increases costs for borrowers – but there are no complex structures piling up and distributing risk to every corner of the world.

Instead, shadow banking in China plays a bank-like role. It is neither complex nor highly interconnected. It collects funds and, after some transfer of credit or liquidity, lends to commercial banks’ former or current clients, including large or small enterprises in manufacturing, real-estate, mining, new energy and the like."