Shadow banking and firm financing in China

Shadow banking, an informal, largely unregulated, financial market, has become increasingly important in China because the fact that it is largely unregulated can threaten the viability of the financial system. This study discusses various issues involved in Chinese shadow banking, including the type, size, risk, and reasons behind the growth of this market. Small and medium-size enterprises (SMEs) in China in particular rely on this informal market as they have limited opportunities for obtaining funds in the formal market. Policymakers have to implement financial reforms to incorporate this informal market into the formal one so as to exercise better control and monitoring.