The Influence Of China’s Shadow Banking In Macroeconomics And Its Political Implication

In recent years, restrictions on the credit quota of commercial banks have led to the propelling of Chinese shadow banking scale. Flourishing of the shadow banking business may improve macroeconomic development through non-bank credit channel. Nevertheless, the huge liquidity risk, default risk and systemic risk attributed by the potential mismatch of debt maturity system has led to the severe financial crisis in 2008 and thus became the chief concern of various financial institutions. Since 2009, new monitoring system has been established in local and foreign financial institutions. Since the rise of Chinese shadow banking differs from that abroad, research over its macroeconomic influence will clarify the pros and cons of shadow banking in order to propose effective regulation policy recommendations.The definition, characteristics and risks of Chinese shadow banking, along with its mechanism over Chinese macroeconomic conditions, have been discussed through theoretical deduction and quantitative analysis on the basis of local and international research foundation. To verify the mechanism, monthly data samples between 2006-2013 were used to establish the VAR model and the effect of Chinese shadow banking scale over changes in currency supply, interest rate, total output and inflation were analysed. We found that dynamic changes in shadow banking could lead to decreased interest rate, increased output and elevated price. Last but not the least, the pressure and hardship of national monitoring institutions in shadow banking monitor have also been described from the viewpoint of Chinese financial monitoring characteristics. Suggestions were provided on the macroeconomic and microeconomic sides.