Beijing has declared a partial victory over shadow banking, which has loomed large over China’s $30tn banking system in recent years, enabling it to pursue looser monetary policy without exacerbating risks.
The explosive growth of non-bank lending — known as shadow banking — since 2010 created a thick tier of riskier borrowers paying higher rates to a new, lightly regulated sector, raising the prospect of a wave of defaults as the economy slows.
Data released last month by the People's Bank of China show that credit creation from all sources fell 6 per cent in 2014 from a year earlier, only the third annual decline since collection of data on “total social finance” started in 2002. This fall reflects the slowing growth of non-bank lending, analysts say.