Research On The Impact Of Shadow Banking On China’s Macro Liquidity

This paper studies the liquidity problem caused by broad shadow banking and internet financing shocks along with the response measures. In the2008global financial crisis, shadow banking plays an important role in the process of the spread and growth of the crisis. The paper focuses on the current stage of Chinese financial system, the profound changes in the context of history, while analyzes the liquidity problems associated with shadow banking system (and broad shadow banking system, such as internet financing).After the2008global financial crisis, Chinese government implemented the loose monetary and fiscal policy that caused the local bonds and real estate-related trust products rapidly expand. In addition, beginning in2010, internet financing suddenly rose, social funds began turning to internet financing, which had a tremendous impact on the original Chinese financial system. As we need to note: First, the most direct effect of the internet financing on the development of traditional financial system is to produce Chinese-style"financial disintermediation" issue, that is capital flows from traditional commercial banking sector to internet financing sector, resulting the liquidity shortages in the credit system, and further leads to credit crisis; Second, local government bonds and real estate trusts have become the main content in the shadow banking business. The above two trends has important effects on the stability of Chinese financial system, one of the most direct one is to create a macro liquidity volatility.The paper draws the study of Gertler, Karadi (2011), Kiyotaki, Moore (2012) etc. on liquidity shocks mathematical model to have an in-depth analysis on the role of shadow banking in contemporary macroeconomics, also used dynamic mathematical model to explain the mechanisms and policy effects of shadow banking on macro liquidity influence.Based on China’s data from January2004to September2014, the paper analyzes the relationship between shadow banking system, monetary liquidy, banking system liquidity and market liquidity. By doing the Johansen cointegration test, the result shows that there is a long-term cointegration relationship between shadow banking system, monetary liquidy, banking system liquidity and market liquidity. Also, the paper uses VECM to establish the response to Cholesky One S.D. and variance decomposition analysis to present the influence of shadow banking system on China’s liquidity.With the special analysis the impacts of fast developing borad shadow banking system, such as internet financing on liquidity. By testing the liquidity flow matrix of the internet financing to the macro-liqudity, the paper shows the influence of internet financing.Lastly, this paper discusses the implementation of the governance methods and principles as the widespread liquidity problems appear in the financial system, namely the study of monetary policy and macro-prudential policies. While macro-prudential regulatory principles apply, it sums up and summarizes the adoption and use of macro-prudential tools.