Social Sciences in China (Chinese Edition)

No.11, 2015

Defining China’s Shadow Banking and Assessing Its Scale—Seen in Term of the Creation of Credit Money

(Abstract)

Sun Guofeng and Jia Junyi

Definition and analysis of the operations of China’s shadow banking from the perspective of the creation of credit money show that its operations include accounting tactics by which banks use assets to create debt; “banking shadows” formed by creating credit money; and traditional shadow banking formed by financial intermediaries’ expansion of credit through money transfer channels. Starting with bank balance sheets and estimating the scale of China’s shadow banking through the deduction method, we find that “banking shadows” account for a high proportion of the creation of credit money and exercise a significant influence on economic operations and social wealth distribution. Therefore, it is necessary to specifically define the boundaries to banks’ expansion of assets and creation of credit money, and devise macro-prudential management instruments for banking shadows and traditional shadow banking respectively.