China’s top banking regulator for the first time defined the criteria, scope and classification of the country’s nearly $13 trillion shadow banking sector in a continuing effort to defuse systemic financial risks as the country expands credit to support recovery from the pandemic, reported Caixin.
The China Banking and Insurance Regulatory Commission (CBIRC) listed four criteria to define shadow banking and divided the sector by a broad definition and a narrow definition in a report issued Friday by the agency’s policy research bureau.
Shadow banking has become a hotbed of hidden credit growth and nonperforming assets, which pose a serious threat to financial security and stability. Since 2017, China has significantly reduced the shadow banking sector as part of a massive deleveraging campaign. As the end of 2019, China’s shadow banking sector as defined broadly shrank to RMB 84.8 trillion ($12.98 trillion) from the peak of RMB 100.4 trillion in 2017, according to the report.
As part of China’s economic stimulus strategy, banks are being encouraged to increase lending to small and medium enterprises, which used to borrow through shadow banking channels. As systemic risks have been greatly reduced, the conditions have become more favorable for macroeconomic stimulus, the authors of the CBIRC report told Caixin.