Working Paper: NBER ID: w30324
Abstract: China's financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China's financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation's yearly flow of liquidity accounting for unique features of China's financial system. While early work on China's financial system emphasizes the state-owned enterprise (SOE) reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels are not only intertwined with each other, but more importantly often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China.
Keywords: No keywords provided
JEL Codes: G10; G20; G30; O16; O17; O33; P34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Development of the financial system (O16) | Economic mobilization (H56) |
| Aggregate financing to the real economy (AFRE) increases (G29) | Economic activity increases (O49) |
| Growth of shadow banking and market-based financing channels (F65) | Capital allocation (G31) |
| Financial system reforms (P34) | Economic stability (E60) |