Research On The Impact Mechanism Of Chinese Shadow Banking On The Macro-economy

"Shadow banking" is a new term after the outbreak of the U.S. subprime crisis in2007. When studying the root of the crisis, we find that this "gray zone" alienated from the supervision is the culprit to promote the crisis. Shadow banking problems quickly catch the global attention and have become the focus of the academic field at home and abroad. With the financial system in China constantly improving and financial volumes increasingly expanding, the financial structure displays a diversified development. The trend of financial integrated management has become increasingly apparent and the traditional financial patterns have undergone the profound changes. The proportion of the RMB loans accounting for the scale of social financing is declining, only53.7%in2011. The financing channels outside the banking system play an increasingly important role in the social financing.China’s shadow banks mainly consist of the wealth management products of commercial banks, entrusted loans, trust loans, wealth management business of securities companies and fund companies, as well as a large number of non-bank financial intermediaries. At present, China’s shadow banking mainly acts as an intermediary role that transports savings to investment, the similar function to the bank financing. It becomes an alternative or complementary of the banking credit system, and becomes an important factor to affect the macro and micro economic operation, mainly manifested in two aspects: China’s shadow banking solves the problem of insufficient funds supply for some corporates or industries, especially providing the financial support for the small and medium-sized enterprises, and the "Three Rural Issues". Meanwhile, some restrained industries, such as the real estate and "two high and one low" industries, obtain the financial support through the shadow banking, impacting the optimal adjustment of economic structure. In addition, parts of the shadow banking products have the characteristics of the currency, creating the generalized mobility. But due to the fact that shadow banking drifts away from the financial regulatory and is not subject to the limitation of monetary policy adjustment of the central bank, it weakens the role of the bank credit channel in the monetary policy transmission. As an important factor affecting the effect of macro-control, shadow banking may bring the uncertainty to the economic development. China’s shadow banking has attracted high attention of the financial management departments.Thus on May2011, China’s Banking Regulatory Commission Chairman Liu Mingkang put the shadow banking as one main risk to prevent. The People’s Bank of China also treated the social financing scale as the observation of the monetary policy to bring the shadow banking into the macro-monitoring scope.Under the above background, it selects the mechanism of China’s shadow banking as the research object. Based on the related theories and literatures, it analyzes the development course, the status, the reasons, the regulatory status and the problems of China’s shadow banking. Afterwards, it also analyzes its impact on the economic growth, the mechanism of monetary policy and risk conduction, and tests the impact on macroeconomic indicators using empirical analysis. According to the regulatory reform measures and valuable experience of foreign shadow banking, it proposes the relating policies and recommendations. The dissertation is divided into eight parts, and the main content and chapter is organized as follows.Chapter one is the introduction. The chapter describes the background and significance, the definition of the shadow banking, the research framework and methods, and points out the innovations and shortcomings of the study.Chapter two is the overview of relevant theory and literatures. The chapter starts from the relating theories on the financial intermediation, financial development, financial liberalization and financial regulation and so on, providing the theoretical support for the research object. Then it reviews and comments the relevant literatures on shadow banking to seize the domestic and foreign research progress.Chapter three is the development status of China’s shadow banking. Based on the analysis of the development and trend of China’s shadow banking, it explains the causes of its existing, and shows the problems of regulatory status quos of shadow banking.Chapter four is the mechanism of the impacts of the shadow banking on monetary policies. Based on the operating mechanism of shadow banking at home and aboard, it explains the mechanism of shadow banking from monetary policy, economic growth and the risk conduction three perspectives.Chapter five is the empirical analysis of the impacts of the shadow banking on monetary policies. By building the VAR model, it respectively uses the dynamic correlation analysis, Granger causality test, co-integration analysis, impulse response and variance decomposition to empirically analyze the impact of shadow banking on the macro-economy and makes some conclusions.Chapter six is the experience references on the supervision reform from foreign shadow banks. Some developed countries and international organizations have proposed the regulation and reform schemes for the shadow banking since the financial crisis. It analyzes the supervision measures on shadow banking of the United States, the United Kingdom, the European Union and the Financial Stability Committee and evaluates the existing reform to summarize some useful experience on the shadow banking supervision.Chapter seven is the countermeasures and suggestions. It puts forward the countermeasures and suggestions from improving the monetary policy framework and building the regulatory mechanism of shadow banking two perspectives combined with the above analysis.Chapter eight is the conclusions and the further research prospects.It gives the following conclusions according to the research on the mechanism of Chinese shadow banks from the normative and empirical analysis.The impacts of Chinese shadow banks on macro-economy are mainly in three aspects. First, Chinese shadow banks are able to assemble the social surplus funds accelerate the capital flow, improve the positive impact of the efficiency in the use of funds on the economic growth. However, its low transaction costs lead to excessive risk has a negative effect on the economic growth. Secondly, the shadow banks interfere the banking money multipliers and their own credit creation mechanism, affecting the traditional money supply creation mechanism and weakening the regulation effects of monetary policies. Thirdly, the risk of shadow banking is mainly caused by the larger credit size of the Off-balance-sheet (OBS), lack of supervision, higher financing costs and maturity mismatch risk. Currently, China’s shadow banks are in the risk accumulation phase with the controllable overall risk.The empirical results on the impact of shadow banks on macro-economy show that there is a stable co-integration relationship between the shadow banks, gross domestic product (GDP), inflation and monetary supply and the shadow banks lead to the economic growth, the changes of price and currency supplies. The shadow banks create the significant impacts on the macro-economy. They include the changes in the real money supplies in the short-term, resulting in the severe shocks in the price stability and promoting the economic growth in the long term.It recognizes both the positive and negative roles from the objective evaluation on the impact of Chinese shadow banks on the macro-economy. China’s shadow banking size is smaller and the overall risk is controlled with mainly positive impact. In view of the fact that its negative impact is mainly due to its not subject to the financial regulation, therefore it should seek advantages and avoid disadvantages to alleviate the problems brought by the Chinese shadow banks and improve the management of the shadow banking.The innovations of this dissertation are as follows.First, it defines the shadow banking. Although the domestic and foreign scholars define the shadow banking from different angles, there has been no unified definition. It defines the concept of China’s shadow banking from the function, the extent of supervision, manifestations, and the point of view of legitimacy and introduces the extension of China’s shadow banking from three levels.Secondly, from a macro perspective, it studies Chinese shadow banking as a whole. While the existing literature on the shadow banking is more involving the shadow banking system in developed countries, a small number of domestic studies on China’s shadow banking still mainly refer to the definition of shadow banking, the level of characterized analysis, or the nature of shadow banking from one component. It rarely explores Chinese shadow banks as a whole, lacking the in-depth study.Thirdly, it gives the systematic analysis of the impact mechanism of Chinese shadow banking on the macro-economy and describes the mechanism of the shadow banking from economic development, monetary policies and risk perspectives. Moreover, it conducts an empirical analysis of the macroeconomic impact of the shadow banking, expanding the research field of the shadow banking issues from the theoretical and empirical point of views.The shortcomings of this dissertation are as follows.First, it only analyzes the impact of shadow banking on the inflation from the empirical perspective, lacking the theoretical analysis of the mechanism.Secondly, when conducting the empirical research, it is subject to the limitations of the underlying data and the selected proxy variables and cannot fully represent the development trend of the shadow banking. Therefore, it may not conclude the comprehensive empirical results with a complete analysis and there is room for the improvement in the future research.