Double Effect And Governance Of China’s Shadow Banking

The outbreak of global financial crisis in 2008 made the global financial system stability and security had been severely damaged, shadow banking was considered to be the main driving force in the crisis and had received the widespread attention from all walks of life, risk and regulatory issues of shadow banking had become a hot topic discussed variously in regulatory authorities. Although the impact of the financial crisis on China was small, it stimulated the rapid development of China’s shadow banking system and its business. In recent years, China’s shadow banking showing explosive growth, in the process of development which has a positive impact on supplement the traditional financial that dominated by commercial banks, rich residents investment channels, active real economy. However, due to China’s economic and financial environment has unique characteristics, there is a big difference between China and the Western countries’ shadow banking in terms of manifestations, operational mechanism, as the organization and business of China’s shadow banking system being more and more complex, hidden risks are beginning to openness and surfacing, and it attracted many concerns both at home and abroad. In such an environment, it is necessary to study the double effect of China’s shadow banking, rationally and effectively guide to play the positive effect, and propose appropriate governance recommendations to negative impact that may arise.This paper follows the idea of the theoretical basis, the status quo, effects and governance, using the method of data, charts and empirical analysis for research. First at all, comb the related theory of the shadow banking, mainly includes the research summary and the general concepts, characteristics and mechanism, etc. Secondly, introduce the status quo of China’s shadow banking system, comprehensively describe the origin, nature and scale of China’s shadow banking from aspects of the causes, characteristics, expression form, etc. also introduce the regulatory situation of China’s current financial supervision and existing regulatory policy and the problems of China’s the shadow banking system. Thirdly, use a combination of theoretical and empirical approach to specifically analyze the double effect on China’s shadow banking system. The chapter expounds the positive effect and negative effect of China’s shadow banking system, and based on the consequence create a VAR model to analyze the influence of the shadow banking system on China’s economic development, the effectiveness of monetary policy and financial stability. Finally, according to the above analysis of the current situation and the effect, put forward some governance recommendations that have feasibility and effectiveness.Through the study found that China’s shadow banking system is a "double-edged sword". It can promote economic development, perfect the financial system construction and push the process of interest rate marketization. On the other hand, it would undermine monetary policy, threat to traditional commercial bank, increase the liquidity risk and excessive credit expansion. Empirical results show that China’s shadow banking has certain positive effect on economic growth, as well as has negative effect on the validity of monetary policy and the financial stability, it further prove that China’s shadow banking has double effect. For this reason, the paper proposes six policy recommendations, including form a governance principle, improve coordination mechanism, strengthen the risk prevention of shadow banking, promote the construction of infrastructure mechanism, sound legal system, and promote financial reform. The purpose is to hope that through enhance governance to guide the healthy development of China’s shadow banking system.